1 Cash-Heavy Stock with Impressive Fundamentals and 2 We Find Risky

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.

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. Keeping that in mind, here is one company with a net cash position that balances growth with stability and two with hidden risks.

Two Stocks to Sell:

BILL (BILL)

Net Cash Position: $354.4 million (7.9% of Market Cap)

Transforming the messy back-office financial operations that plague small business owners, BILL (NYSE:BILL) provides a cloud-based platform that automates accounts payable, accounts receivable, and expense management for small and midsize businesses.

Why Do We Pass on BILL?

1. Offerings struggled to generate meaningful interest as its average billings growth of 11.7% over the last year did not impress
2. Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
3. Static operating margin over the last year shows it couldn’t become more efficient

At $45.05 per share, BILL trades at 2.5x forward price-to-sales. To fully understand why you should be careful with BILL, check out our full research report (it’s free).

Lennar (LEN)

Net Cash Position: $6.19 billion (24.1% of Market Cap)

One of the largest homebuilders in America, Lennar (NYSE:LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.

Why Are We Out on LEN?

1. Demand cratered as it couldn’t win new orders over the past two years, leading to an average 15.1% decline in its backlog
2. 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
3. Eroding returns on capital suggest its historical profit centers are aging

Lennar is trading at $105.17 per share, or 15.9x forward P/E. If you’re considering LEN for your portfolio, see our FREE research report to learn more.

One Stock to Buy:

JFrog (FROG)

Net Cash Position: $692 million (14.1% of Market Cap)

Named after the amphibian that continuously evolves from egg to tadpole to adult, JFrog (NASDAQ:FROG) provides a platform that helps organizations securely create, store, manage, and distribute software packages across any system.

Why Is FROG a Top Pick?

1. Ability to secure long-term commitments with customers is evident in its 23.6% ARR growth over the last year
2. Software platform has product-market fit given the rapid recovery of its customer acquisition costs
3. Robust free cash flow margin of 26.8% gives it many options for capital deployment

JFrog’s stock price of $41.52 implies a valuation ratio of 7.4x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.

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