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.
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. That said, here are three companies with net cash positions to avoid and some better alternatives instead.
Teradyne (TER)
Net Cash Position: $523 million (4.4% of Market Cap)
Sporting most major chip manufacturers as its customers, Teradyne (NASDAQ:TER) is a US-based supplier of automated test equipment for semiconductors as well as other technologies and devices.
Why Are We Wary of TER?
- Customers postponed purchases of its products and services this cycle as its revenue declined by 5.5% annually over the last two years
- Efficiency has decreased over the last five years as its operating margin fell by 8.7 percentage points
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.1 percentage points
At $73.91 per share, Teradyne trades at 17.4x forward price-to-earnings. To fully understand why you should be careful with TER, check out our full research report (it’s free).
CarGurus (CARG)
Net Cash Position: $111.4 million (3.8% of Market Cap)
Bringing transparency to a sometimes opaque process, CarGurus (NASDAQ:CARG) is a digital marketplace where auto dealers can connect with potential customers and where car buyers can browse, purchase, and obtain financing.
Why Does CARG Fall Short?
- Increasing competition is redirecting attention to other platforms as it failed to grow its paying dealers over the last two years
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 5.3%
- Earnings per share lagged its peers over the last three years as they only grew by 5.2% annually
CarGurus’s stock price of $27.32 implies a valuation ratio of 10.6x forward EV-to-EBITDA. Dive into our free research report to see why there are better opportunities than CARG.
Taboola (TBLA)
Net Cash Position: $49.67 million (5.1% of Market Cap)
Often appearing as those "You May Also Like" or "Recommended For You" boxes at the bottom of news articles, Taboola (NASDAQ:TBLA) operates a digital platform that recommends personalized content to users across publisher websites, helping both publishers monetize their sites and advertisers reach target audiences.
Why Does TBLA Give Us Pause?
- Falling earnings per share over the last four years has some investors worried as stock prices ultimately follow EPS over the long term
- Free cash flow margin dropped by 8,039.1 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Negative returns on capital show that some of its growth strategies have backfired
Taboola is trading at $2.82 per share, or 8.1x forward price-to-earnings. If you’re considering TBLA for your portfolio, see our FREE research report to learn more.
Stocks We Like More
The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.
While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Axon (+711% five-year return). Find your next big winner with StockStory today for free.