1 Cash-Heavy Stock with Promising Prospects and 2 We Turn Down

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.

Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. That said, 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:

Insteel (IIIN)

Net Cash Position: $36.78 million (6.2% of Market Cap)

Growing from a small wire manufacturer to one of the largest in the U.S., Insteel (NYSE:IIIN) provides steel wire reinforcing products for concrete.

Why Does IIIN Worry Us?

1. Products and services are facing end-market challenges during this cycle, as seen in its flat sales over the last two years
2. 5.9 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $30.66 per share, Insteel trades at 10.4x forward P/E. Read our free research report to see why you should think twice about including IIIN in your portfolio.

Richardson Electronics (RELL)

Net Cash Position: $33.63 million (23.9% of Market Cap)

Founded in 1947, Richardson Electronics (NASDAQ:RELL) is a distributor of power grid and microwave tubes as well as consumables related to those products.

Why Do We Avoid RELL?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 2% decline in its backlog
2. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
3. Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results

Richardson Electronics is trading at $9.71 per share, or 53.9x forward P/E. To fully understand why you should be careful with RELL, check out our full research report (it’s free for active Edge members).

One Stock to Watch:

Vita Coco (COCO)

Net Cash Position: $203.6 million (7.4% of Market Cap)

Founded in 2004 followed by a 2021 IPO, The Vita Coco Company (NASDAQ:COCO) offers coconut water products that are a natural way to quench thirst.

Why Is COCO Interesting?

1. Products are flying off the shelves as its unit sales averaged 10.8% growth over the past two years
2. Earnings per share have massively outperformed its peers over the last three years, increasing by 89.3% annually
3. ROIC punches in at 43.3%, illustrating management’s expertise in identifying profitable investments, and its returns are growing as it capitalizes on even better market opportunities

Vita Coco’s stock price of $50.20 implies a valuation ratio of 36.6x forward P/E. Is now the right time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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