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. Keeping that in mind, here is one company with a net cash position that can continue growing sustainably and two best left off your watchlist.
Two Stocks to Sell:
Zillow (ZG)
Net Cash Position: $838 million (7.7% of Market Cap)
Founded by Expedia co-founders Lloyd Frink and Rich Barton, Zillow (NASDAQ: ZG) is the leading U.S. online real estate marketplace.
Why Are We Out on ZG?
- Annual revenue declines of 5% over the last five years indicate problems with its market positioning
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Returns on capital are growing as management invests in more worthwhile ventures
Zillow is trading at $45.06 per share, or 20.3x forward P/E. Read our free research report to see why you should think twice about including ZG in your portfolio.
Ruger (RGR)
Net Cash Position: $90.73 million (14.7% of Market Cap)
Founded in 1949, Ruger (NYSE: RGR) is an American manufacturer of firearms for the commercial sporting market.
Why Should You Sell RGR?
- Products and services fail to spark excitement with consumers, as seen in its flat sales over the last five years
- Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 6.8% for the last two years
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
At $39.59 per share, Ruger trades at 20.4x forward P/E. If you’re considering RGR for your portfolio, see our FREE research report to learn more.
One Stock to Buy:
United Therapeutics (UTHR)
Net Cash Position: $2.39 billion (10.1% of Market Cap)
Founded by a mother seeking treatment for her daughter's pulmonary arterial hypertension, United Therapeutics (NASDAQ: UTHR) develops and commercializes medications for chronic lung diseases and other life-threatening conditions, with a focus on pulmonary hypertension treatments.
Why Is UTHR a Good Business?
- Impressive 16.9% annual revenue growth over the last two years indicates it’s winning market share this cycle
- Impressive free cash flow profitability enables the company to fund new investments or reward investors with share buybacks/dividends, and its rising cash conversion increases its margin of safety
- Returns on capital are growing as management capitalizes on its market opportunities
United Therapeutics’s stock price of $545.23 implies a valuation ratio of 19.5x forward P/E. Is now the time to initiate a position? Find out in our full research report, it’s free.
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