3 Cash-Heavy Stocks with Questionable Fundamentals

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. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.

EPAM (EPAM)

Net Cash Position: $878.7 million (10.4% of Market Cap)

Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.

Why Does EPAM Fall Short?

1. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
2. Earnings per share were flat over the last two years while its revenue grew, showing its incremental sales were less profitable
3. Eroding returns on capital suggest its historical profit centers are aging

At $151.20 per share, EPAM trades at 13x forward P/E. Check out our free in-depth research report to learn more about why EPAM doesn’t pass our bar.

LendingClub (LC)

Net Cash Position: $745.6 million (41.2% of Market Cap)

Pioneering peer-to-peer lending in the US before evolving into a digital bank, LendingClub (NYSE:LC) operates a marketplace that connects borrowers with lenders, offering personal loans, auto refinancing, and banking services.

Why Is LC Not Exciting?

1. Annual sales declines of 8% for the past two years show its products and services struggled to connect with the market during this cycle
2. Earnings per share have contracted by 8.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
3. ROE of 6.7% reflects management’s challenges in identifying attractive investment opportunities

LendingClub’s stock price of $15.80 implies a valuation ratio of 12.8x forward P/E. Dive into our free research report to see why there are better opportunities than LC.

Banc of California (BANC)

Net Cash Position: $4.21 billion (151% of Market Cap)

Originally established in 1941 and now operating with a tech-forward approach that includes its SmartStreet platform for homeowner associations, Banc of California (NYSE:BANC) is a California-based bank holding company that provides banking services to small and middle-market businesses, entrepreneurs, and individuals.

Why Are We Wary of BANC?

1. Loans are facing significant end-market challenges during this cycle as net interest income has declined by 1.3% annually over the last five years
2. Tangible book value per share tumbled by 3.9% annually over the last five years, showing banking sector trends are working against its favor during this cycle
3. Negative return on equity shows management lost money while trying to expand the business

Banc of California is trading at $17.71 per share, or 0.9x forward P/B. To fully understand why you should be careful with BANC, check out our full research report (it’s free for active Edge members).

High-Quality Stocks for All Market Conditions

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