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 is one company with a net cash position that can leverage its balance sheet to grow and two best left off your watchlist.
Two Stocks to Sell:
Revolve (RVLV)
Net Cash Position: $280.7 million (16.3% of Market Cap)
Launched in 2003 by software engineers Michael Mente and Mike Karanikolas, Revolve (NYSE: RVLV) is a fashion retailer leveraging social media and a community of fashion influencers to drive its merchandising strategy.
Why Do We Think Twice About RVLV?
- Muted 6.6% annual revenue growth over the last three years shows its demand lagged behind its consumer internet peers
- White space opportunities may be dwindling as its growth in active customers averaged a weak 6.5%
- Excessive marketing spend signals little organic demand and traction for its platform
At $24.09 per share, Revolve trades at 14.2x forward EV/EBITDA. To fully understand why you should be careful with RVLV, check out our full research report (it’s free).
EverQuote (EVER)
Net Cash Position: $190.4 million (21% of Market Cap)
Aiming to simplify a once complicated process, EverQuote (NASDAQ: EVER) is an online insurance marketplace where consumers can compare and purchase various types of insurance from different providers
Why Are We Cautious About EVER?
- Highly competitive market means it’s on the never-ending treadmill of sales and marketing spend
EverQuote’s stock price of $25.76 implies a valuation ratio of 5.4x forward EV/EBITDA. If you’re considering EVER for your portfolio, see our FREE research report to learn more.
One Stock to Watch:
Atlassian (TEAM)
Net Cash Position: $6.60 million (0% of Market Cap)
Started by two Australian university friends who funded their startup with credit cards, Atlassian (NASDAQ: TEAM) provides software tools that help teams plan, track, collaborate, and share knowledge across organizations.
Why Do We Like TEAM?
- Annual revenue growth of 22.8% over the past two years was outstanding, reflecting market share gains
- Billings growth has averaged 20.5% over the last year, indicating a healthy pipeline of new contracts that should drive future revenue increases
- Prominent and differentiated software culminates in a best-in-class gross margin of 85.6%
Atlassian is trading at $149.55 per share, or 3.8x forward price-to-sales. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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