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. Keeping that in mind, here are three companies with net cash positions to steer clear of and a few alternatives to consider.
PubMatic (PUBM)
Net Cash Position: $101.7 million (26.6% of Market Cap)
Powering billions of daily ad impressions across the open internet, PubMatic (NASDAQ: PUBM) operates a technology platform that helps publishers maximize revenue from their digital advertising inventory while giving advertisers more control and transparency.
Why Do We Steer Clear of PUBM?
- Customers have churned over the last year due to the commoditized nature of its software, as reflected in its 96% net revenue retention rate
- Customer acquisition costs take a while to recoup, making it difficult to justify sales and marketing investments that could increase revenue
- Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 7.4 percentage points
PubMatic is trading at $8.20 per share, or 1.4x forward price-to-sales. Read our free research report to see why you should think twice about including PUBM in your portfolio.
DoubleVerify (DV)
Net Cash Position: $159.5 million (9.7% of Market Cap)
Using advanced analytics to evaluate over 17 billion digital ad transactions daily, DoubleVerify (NYSE: DV) provides AI-powered technology that verifies digital ads are viewable, fraud-free, brand-suitable, and displayed in the intended geographic location.
Why Is DV Not Exciting?
- Annual revenue growth of 14.3% over the last two years was below our standards for the software sector
- Long payback periods on sales and marketing expenses limit customer growth and signal the company operates in a highly competitive environment
- Costs have risen faster than its revenue over the last year, causing its operating margin to decline by 2 percentage points
At $10.16 per share, DoubleVerify trades at 2x forward price-to-sales. If you’re considering DV for your portfolio, see our FREE research report to learn more.
Omnicell (OMCL)
Net Cash Position: $16.97 million (1.1% of Market Cap)
Driven by the vision of an "Autonomous Pharmacy" with zero medication errors, Omnicell (NASDAQ: OMCL) provides medication management automation and adherence tools that help healthcare systems and pharmacies reduce errors and improve efficiency.
Why Do We Avoid OMCL?
- Sales trends were unexciting over the last two years as its 1.6% annual growth was below the typical healthcare company
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 9.2 percentage points
- Earnings per share fell by 8.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
Omnicell’s stock price of $34.32 implies a valuation ratio of 18.9x forward P/E. Check out our free in-depth research report to learn more about why OMCL doesn’t pass our bar.
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