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.

Not all businesses with cash are winners, and that’s why we built StockStory - to help you separate the good from the bad. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.

Clarus (CLAR)

Net Cash Position: $27.53 million (18.7% of Market Cap)

Initially a financial services business, Clarus (NASDAQ:CLAR) designs, manufactures, and distributes outdoor equipment and lifestyle products.

Why Do We Avoid CLAR?

1. Sales trends were unexciting over the last five years as its 4.2% annual growth was below the typical consumer discretionary company
2. Negative free cash flow raises questions about the return timeline for its investments
3. Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions

Clarus’s stock price of $3.75 implies a valuation ratio of 24.4x forward P/E. Check out our free in-depth research report to learn more about why CLAR doesn’t pass our bar.

Insteel (IIIN)

Net Cash Position: $13.78 million (2.1% 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 Are We Hesitant About IIIN?

1. Sales trends were unexciting over the last two years as its 5.9% annual growth was below the typical industrials company
2. Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 8.3 percentage points
3. Waning returns on capital imply its previous profit engines are losing steam

Insteel is trading at $33.13 per share, or 12x forward P/E. Dive into our free research report to see why there are better opportunities than IIIN.

Landstar (LSTR)

Net Cash Position: $375.4 million (7.4% of Market Cap)

Covering billions of miles throughout North America, Landstar (NASDAQ:LSTR) is a transportation company specializing in freight and last-mile delivery services.

Why Should You Sell LSTR?

1. Sales tumbled by 5.4% annually over the last two years, showing market trends are working against its favor during this cycle
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. Eroding returns on capital suggest its historical profit centers are aging

At $149.31 per share, Landstar trades at 28.4x forward P/E. Read our free research report to see why you should think twice about including LSTR in your portfolio.

Stocks We Like More

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