3 Cash-Heavy Stocks with Questionable Fundamentals

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.

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 that don’t make the cut and some better choices instead.

MasterCraft (MCFT)

Net Cash Position: $64.26 million (19.2% of Market Cap)

Started by a waterskiing instructor, MasterCraft (NASDAQ:MCFT) specializes in designing, manufacturing, and selling sport boats.

Why Do We Think Twice About MCFT?

1. Performance surrounding its boats sold has lagged its peers
2. Free cash flow margin is forecasted to shrink by 13.8 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
3. Diminishing returns on capital suggest its earlier profit pools are drying up

MasterCraft is trading at $20.12 per share, or 15.9x forward P/E. Read our free research report to see why you should think twice about including MCFT in your portfolio.

Napco (NSSC)

Net Cash Position: $83.92 million (7.7% of Market Cap)

Protecting everything from schools to government facilities since 1969, Napco Security Technologies (NASDAQ:NSSC) manufactures electronic security devices, access control systems, and communication services for intrusion and fire alarm systems.

Why Are We Wary of NSSC?

1. Muted 3.7% annual revenue growth over the last two years shows its demand lagged behind its business services peers
2. Subscale operations are evident in its revenue base of $181.2 million, meaning it has fewer distribution channels than its larger rivals
3. Demand is forecasted to shrink as its estimated sales for the next 12 months are flat

At $30.39 per share, Napco trades at 26x forward P/E. Dive into our free research report to see why there are better opportunities than NSSC.

Progyny (PGNY)

Net Cash Position: $279.6 million (14.1% of Market Cap)

Pioneering a data-driven approach to family building that has achieved an industry-leading patient satisfaction score of +80, Progyny (NASDAQ:PGNY) provides comprehensive fertility and family building benefits solutions to employers, helping employees access quality fertility treatments and support services.

Why Are We Cautious About PGNY?

1. Subscale operations are evident in its revenue base of $1.24 billion, meaning it has fewer distribution channels than its larger rivals
2. Estimated sales growth of 4.8% for the next 12 months implies demand will slow from its two-year trend
3. Underwhelming 0.6% return on capital reflects management’s difficulties in finding profitable growth opportunities

Progyny’s stock price of $22.73 implies a valuation ratio of 13.8x forward P/E. To fully understand why you should be careful with PGNY, check out our full research report (it’s free).

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