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. Keeping that in mind, here are three companies with net cash positions to avoid and some better alternatives instead.
PlayStudios (MYPS)
Net Cash Position: $99.99 million (132% of Market Cap)
Founded by a team of former gaming industry executives, PlayStudios (NASDAQ: MYPS) offers free-to-play digital casino games.
Why Do We Avoid MYPS?
- Sales tumbled by 4.2% annually over the last five years, showing consumer trends are working against it
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Returns on capital are growing as management invests in more worthwhile ventures
At $0.44 per share, PlayStudios trades at 0.3x forward price-to-sales. If you’re considering MYPS for your portfolio, see our FREE research report to learn more.
Monarch (MCRI)
Net Cash Position: $107.1 million (4.7% of Market Cap)
Established in 1993, Monarch (NASDAQ: MCRI) operates luxury casinos and resorts, offering high-end gaming, dining, and hospitality experiences.
Why Should You Sell MCRI?
- Lackluster 4.8% annual revenue growth over the last two years indicates the company is losing ground to competitors
- Forecasted free cash flow margin suggests the company will fail to improve its cash conversion over the next year
- Returns on capital are increasing as management makes relatively better investment decisions
Monarch’s stock price of $130.63 implies a valuation ratio of 10.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why MCRI doesn’t pass our bar.
EVgo (EVGO)
Net Cash Position: $39.23 million (14% of Market Cap)
Created through a settlement between NRG Energy and the California Public Utilities Commission, EVgo (NASDAQ: EVGO) is a provider of electric vehicle charging solutions, operating fast charging stations across the United States.
Why Are We Cautious About EVGO?
- Historical operating margin losses point to an inefficient cost structure
- Cash-burning history makes us doubt the long-term viability of its business model
- Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders
EVgo is trading at $1.79 per share, or 11.7x forward EV-to-EBITDA. To fully understand why you should be careful with EVGO, check out our full research report (it’s free).
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