1 Cash-Heavy Stock with Exciting Potential and 2 We Ignore

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.

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 leverage its balance sheet to grow and two that may struggle.

Two Stocks to Sell:

Kratos (KTOS)

Net Cash Position: $434.4 million (3.3% of Market Cap)

Established with a commitment to supporting national security, Kratos (NASDAQ:KTOS) is a provider of advanced engineering, technology, and security solutions tailored for critical national security applications.

Why Does KTOS Give Us Pause?

1. Free cash flow margin dropped by 9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
2. Low returns on capital reflect management’s struggle to allocate funds effectively, and its decreasing returns suggest its historical profit centers are aging
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

At $77.67 per share, Kratos trades at 113.2x forward P/E. Dive into our free research report to see why there are better opportunities than KTOS.

Bank OZK (OZK)

Net Cash Position: $1.28 billion (24.1% of Market Cap)

Founded in 1903 and rebranded from Bank of the Ozarks in 2018, Bank OZK (NASDAQ:OZK) is a commercial bank that specializes in real estate lending while offering a full range of banking services to individuals and businesses.

Why Are We Hesitant About OZK?

1. Sales trends were unexciting over the last two years as its 9.1% annual growth was below the typical banking company
2. 89 basis point (100 basis points = 1 percentage point) decline in its net interest margin over the last two years reflects the firm’s willingness to accept lower profitability to defend its market position
3. Overall productivity is expected to decrease over the next year as Wall Street thinks its efficiency ratio will degrade by 2.9 percentage points

Bank OZK’s stock price of $47.16 implies a valuation ratio of 0.9x forward P/B. If you’re considering OZK for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

Fidelis Insurance (FIHL)

Net Cash Position: $246.1 million (12.3% of Market Cap)

Founded in Bermuda in 2014 and designed to adapt nimbly to evolving market conditions, Fidelis Insurance (NYSE:FIHL) is a global specialty insurer and reinsurer that provides customized coverage across property, specialty, and bespoke risk solutions.

Why Are We Positive On FIHL?

1. Net premiums earned surged by 17.1% annually over the past two years, reflecting strong market share gains this cycle
2. Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
3. Projected book value per share growth of 21.8% for the next 12 months is above its two-year trend, pointing to accelerating profitability

Fidelis Insurance is trading at $20.15 per share, or 0.8x forward P/B. Is now the time to initiate a position? Find out in our full research report, it’s free for active Edge members.

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