2 Cash-Heavy Stocks Worth Investigating and 1 Facing Challenges

A cash-heavy balance sheet is often a sign of strength, but not always. Some companies avoid debt because they have weak business models, limited expansion opportunities, or inconsistent cash flow.

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 two companies with net cash positions that can leverage their balance sheets to grow and one with hidden risks.

One Stock to Sell:

Paylocity (PCTY)

Net Cash Position: $37.7 million (0.5% of Market Cap)

Operating in a field where companies traditionally juggled multiple disconnected systems, Paylocity (NASDAQ:PCTY) provides cloud-based human capital management and payroll software solutions that help businesses manage their workforce and HR processes.

Why Are We Wary of PCTY?

1. Average ARR growth of 14.7% over the last year has disappointed, suggesting it’s had a hard time winning long-term deals and renewals
2. Estimated sales growth of 6.8% for the next 12 months implies demand will slow from its two-year trend
3. Operating margin was unchanged over the last year, suggesting it failed to gain leverage on its fixed costs

At $153.22 per share, Paylocity trades at 4.9x forward price-to-sales. To fully understand why you should be careful with PCTY, check out our full research report (it’s free for active Edge members).

Two Stocks to Watch:

Incyte (INCY)

Net Cash Position: $2.89 billion (13.3% of Market Cap)

Founded in 1991 and evolving from a genomics research firm to a commercial-stage drug developer, Incyte (NASDAQ:INCY) is a biopharmaceutical company that discovers, develops, and commercializes proprietary therapeutics for cancer and inflammatory diseases.

Why Are We Fans of INCY?

1. Annual revenue growth of 15.5% over the last two years beat the sector average and underscores the unique value of its offerings
2. Performance over the past five years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
3. Free cash flow margin increased by 6.8 percentage points over the last five years, giving the company more capital to invest or return to shareholders

Incyte is trading at $111.58 per share, or 14.4x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free for active Edge members.

Clover Health (CLOV)

Net Cash Position: $202.8 million (15.7% of Market Cap)

Founded in 2014 to improve healthcare for America's seniors through technology, Clover Health (NASDAQ:CLOV) provides Medicare Advantage plans for seniors with a focus on affordable care and uses its proprietary Clover Assistant software to help physicians manage patient care.

Why Does CLOV Catch Our Eye?

1. Average customer growth of 10.3% over the past two years demonstrates success in acquiring new clients that could increase their spending in the future
2. Earnings growth has massively outpaced its peers over the last four years as its EPS has compounded at 65% annually
3. Negative free cash flow margin has improved over the last five years, showing the company is one step closer to financial self-sufficiency

Clover Health’s stock price of $2.52 implies a valuation ratio of 37x forward P/E. Is now a good time to buy? See for yourself in our in-depth research report, it’s free for active Edge members.

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