3 Cash-Heavy Stocks We Think Twice About

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. That said, here are three companies with net cash positions that don’t make the cut and some better choices instead.

Zevia (ZVIA)

Net Cash Position: $25.2 million (21.5% of Market Cap)

With a primary focus on soda but also a presence in energy drinks and teas, Zevia (NYSE:ZVIA) is a better-for-you beverage company.

Why Does ZVIA Fall Short?

1. Flat sales over the last three years suggest it must innovate and find new ways to grow
2. Revenue base of $162.8 million puts it at a disadvantage compared to larger competitors exhibiting economies of scale
3. Suboptimal cost structure is highlighted by its history of operating margin losses

Zevia is trading at $1.78 per share, or 169.4x forward EV-to-EBITDA. If you’re considering ZVIA for your portfolio, see our FREE research report to learn more.

Proto Labs (PRLB)

Net Cash Position: $117.2 million (9.2% of Market Cap)

Pioneering the concept of online quoting and manufacturing for custom prototypes and low-volume production parts, Proto Labs (NYSE:PRLB) offers injection molding, 3D printing, and sheet metal fabrication for manufacturers in various industries.

Why Do We Avoid PRLB?

1. Annual revenue growth of 2.4% over the last two years was below our standards for the industrials sector
2. Falling earnings per share over the last five years has some investors worried as stock prices ultimately follow EPS over the long term
3. Negative returns on capital show management lost money while trying to expand the business, and its shrinking returns suggest its past profit sources are losing steam

Proto Labs’s stock price of $53.95 implies a valuation ratio of 33.7x forward P/E. Read our free research report to see why you should think twice about including PRLB in your portfolio.

Root (ROOT)

Net Cash Position: $454 million (39.4% of Market Cap)

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ:ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Why Does ROOT Give Us Pause?

1. Annual book value per share declines of 158% for the past five years show its capital management struggled during this cycle
2. Negative return on equity shows that some of its growth strategies have backfired

At $74.54 per share, Root trades at 3.9x forward P/B. Check out our free in-depth research report to learn more about why ROOT doesn’t pass our bar.

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