A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.
Financial flexibility is valuable, but it’s not everything - at StockStory, we help you find the stocks that can not only survive but also outperform. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.
Marqeta (MQ)
Net Cash Position: $696.8 million (40.6% of Market Cap)
Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ:MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.
Why Are We Wary of MQ?
- Revenue increased by 11% annually over the last five years, acceptable on an absolute basis but tepid for a software company enjoying secular tailwinds
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Projected 8.9 percentage point decline in its free cash flow margin next year reflects the company’s plans to increase its investments to defend its market position
Marqeta’s stock price of $16.45 implies a valuation ratio of 2.2x forward price-to-sales. If you’re considering MQ for your portfolio, see our FREE research report to learn more.
Coupang (CPNG)
Net Cash Position: $477 million (1.6% of Market Cap)
Founded in 2010 by Harvard Business School student Bom Kim, Coupang (NYSE:CPNG) is an e-commerce giant often referred to as the "Amazon of South Korea".
Why Does CPNG Give Us Pause?
- White space opportunities may be dwindling as its growth in active customers averaged a weak 7.2%
- Gross margin of 28.9% reflects its high servicing costs
- Performance over the past three years shows its incremental sales were much less profitable, as its earnings per share fell by 41.4% annually
Coupang is trading at $16.25 per share, or 19.2x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than CPNG.
Trustmark (TRMK)
Net Cash Position: $2.95 billion (105% of Market Cap)
Tracing its roots back to 1889 in Mississippi, Trustmark (NASDAQ:TRMK) is a financial services organization providing banking, wealth management, insurance, and mortgage services across five southeastern states.
Why Are We Hesitant About TRMK?
- Net interest income trends were unexciting over the last five years as its 8.6% annual growth was below the typical banking firm
- Estimated net interest income growth of 4.1% for the next 12 months implies demand will slow from its five-year trend
- Earnings per share lagged its peers over the last five years as they only grew by 3.9% annually
At $48.21 per share, Trustmark trades at 1.3x forward P/B. Check out our free in-depth research report to learn more about why TRMK doesn’t pass our bar.
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