1 Cash-Heavy Stock with Exciting Potential and 2 That Underwhelm

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.

Financial flexibility is valuable, but it’s not everything - at StockStory, we help you find the stocks that can not only survive but also outperform. Keeping that in mind, here is one company with a net cash position that can continue growing sustainably and two with hidden risks.

Two Stocks to Sell:

Elastic (ESTC)

Net Cash Position: $805.4 million (10.8% of Market Cap)

Built on the powerful open-source Elasticsearch technology that powers search functionality for thousands of websites worldwide, Elastic (NYSE:ESTC) provides a search and AI platform that helps organizations find insights from their data, monitor applications, and protect against security threats.

Why Does ESTC Give Us Pause?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 13.9% average billings growth over the last year was weak
2. Estimated sales growth of 13.6% for the next 12 months implies demand will slow from its two-year trend
3. Operating margin improvement of 5.9 percentage points over the last year demonstrates its ability to scale efficiently

Elastic’s stock price of $70.30 implies a valuation ratio of 4.1x forward price-to-sales. Dive into our free research report to see why there are better opportunities than ESTC.

Strategic Education (STRA)

Net Cash Position: $55 million (3% of Market Cap)

Formed through the merger of Strayer Education and Capella Education in 2018, Strategic Education (NASDAQ:STRA) is a career-focused higher education provider.

Why Do We Avoid STRA?

1. Sluggish trends in its domestic students suggest customers aren’t adopting its solutions as quickly as the company hoped
2. Earnings per share fell by 5.2% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
3. Free cash flow margin is not anticipated to grow over the next year

At $78.02 per share, Strategic Education trades at 12.6x forward P/E. If you’re considering STRA for your portfolio, see our FREE research report to learn more.

One Stock to Buy:

Duolingo (DUOL)

Net Cash Position: $1.03 billion (11.6% of Market Cap)

Founded by a Carnegie Mellon computer science professor and his Ph.D. student, Duolingo (NASDAQ:DUOL) is a mobile app helping people learn new languages.

Why Are We Backing DUOL?

1. Monthly Active Users have increased by an average of 33.1% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
2. Performance over the past three years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 259% outpaced its revenue gains
3. DUOL is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its improved cash conversion implies it’s becoming a less capital-intensive business

Duolingo is trading at $189.25 per share, or 26.2x forward EV/EBITDA. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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