3 Cash-Heavy Stocks with Warning Signs

Companies with more cash than debt can be financially resilient, but that doesn’t mean they’re all strong investments. Some lack leverage because they struggle to grow or generate consistent profits, making them unattractive borrowers.

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. That said, here are three companies with net cash positions to avoid and some better alternatives instead.

Marqeta (MQ)

Net Cash Position: $818.6 million (29.7% of Market Cap)

Powering the cards behind innovative fintech services like Block's Cash App, Marqeta (NASDAQ:MQ) provides a cloud-based platform that allows businesses to create customized payment card programs and process card transactions.

Why Are We Hesitant About MQ?

1. Products and services have few die-hard fans as sales have declined by 4.7% annually over the last three years
2. Inability to adjust its cost structure while its revenue declined over the last year led to a 4.3 percentage point drop in the company’s operating margin
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 9.6% for the last year

At $6.15 per share, Marqeta trades at 4.3x forward price-to-sales. Dive into our free research report to see why there are better opportunities than MQ.

FARO (FARO)

Net Cash Position: $10.47 million (1.2% of Market Cap)

Launched by two PhD students in a garage, FARO (NASDAQ:FARO) provides 3D measurement and imaging systems for the manufacturing, construction, engineering, and public safety industries.

Why Does FARO Worry Us?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.5% annually over the last five years
2. Persistent operating margin losses suggest the business manages its expenses poorly
3. Cash-burning history makes us doubt the long-term viability of its business model

FARO’s stock price of $44 implies a valuation ratio of 39.6x forward P/E. Check out our free in-depth research report to learn more about why FARO doesn’t pass our bar.

TowneBank (TOWN)

Net Cash Position: $999.4 million (37% of Market Cap)

Founded in 1998 with a commitment to community-centered banking in the Hampton Roads region, TowneBank (NASDAQ:TOWN) is a community-focused financial institution providing banking, lending, and wealth management services to individuals and businesses in Virginia and North Carolina.

Why Does TOWN Fall Short?

1. Annual net interest income growth of 4.2% over the last four years was below our standards for the banking sector
2. Net interest margin of 3% is well below other banks, signaling its loans aren’t very profitable
3. Costs have risen faster than its revenue over the last four years, causing its efficiency ratio to worsen by 13.6 percentage points

TowneBank is trading at $37 per share, or 1.2x forward P/B. Read our free research report to see why you should think twice about including TOWN in your portfolio.

Stocks We Like More

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