A surplus of cash can mean financial stability, but it can also indicate a reluctance (or inability) to invest in growth. Some of these companies also face challenges like stagnating revenue, declining market share, or limited scalability.
Just because a business has cash doesn’t mean it’s a good investment. Luckily, StockStory is here to help you separate the winners from the losers. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.
DocuSign (DOCU)
Net Cash Position: $689.5 million (5.3% of Market Cap)
Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ: DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.
Why Are We Wary of DOCU?
- Average ARR growth of 8.4% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.7%
- Operating margin improvement of 3.5 percentage points over the last year demonstrates its ability to scale efficiently
At $65.16 per share, DocuSign trades at 4x forward price-to-sales. To fully understand why you should be careful with DOCU, check out our full research report (it’s free for active Edge members).
LegalZoom (LZ)
Net Cash Position: $222.5 million (12.1% of Market Cap)
Founded by famous lawyer Robert Shapiro, LegalZoom (NASDAQ: LZ) offers online legal services and documentation assistance for individuals and businesses.
Why Does LZ Fall Short?
- Annual revenue growth of 5.7% over the last three years was below our standards for the consumer internet sector
- Decision to emphasize platform growth over monetization has contributed to sluggish trends in its average revenue per user
- Expensive marketing campaigns hurt its profitability and make us wonder what would happen if it let up on the gas
LegalZoom is trading at $10.41 per share, or 8.9x forward EV/EBITDA. Read our free research report to see why you should think twice about including LZ in your portfolio.
Blink Charging (BLNK)
Net Cash Position: $17.68 million (15.5% of Market Cap)
One of the first EV charging companies to go public, Blink Charging (NASDAQ: BLNK) is a manufacturer, owner, operator, and provider of electric vehicle charging equipment and networked EV charging services.
Why Does BLNK Give Us Pause?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.9% annually over the last two years
- Cash-burning tendencies make us wonder if it can sustainably generate shareholder value
- Depletion of cash reserves could lead to a fundraising event that triggers shareholder dilution
Blink Charging’s stock price of $0.81 implies a valuation ratio of 0.6x forward price-to-sales. Check out our free in-depth research report to learn more about why BLNK doesn’t pass our bar.
Stocks We Like More
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