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.
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 continue growing sustainably and one best left off your watchlist.
Net Cash Position: $239.2 million (12.4% of Market Cap)
Specializing in online casino gaming and sports betting, Rush Street Interactive (NYSE:RSI) is an operator of digital gaming platforms.
Why Does RSI Give Us Pause?
Poor expense management has led to an operating margin of 2.6% that is below the industry average
Rush Street Interactive’s stock price of $20.29 implies a valuation ratio of 47.4x forward P/E. To fully understand why you should be careful with RSI, check out our full research report (it’s free for active Edge members).
Net Cash Position: $2.18 billion (1.6% of Market Cap)
Founded in 2005 by security visionary Nir Zuk who sought to reimagine firewall technology, Palo Alto Networks (NASDAQ:PANW) provides AI-powered cybersecurity platforms that protect organizations’ networks, clouds, and endpoints from sophisticated threats.
Why Could PANW Be a Winner?
22% annual revenue growth over the last five years surpassed the sector average as its software resonated with customers
User-friendly software enables clients to ramp up spending quickly, leading to the speedy recovery of customer acquisition costs
Strong free cash flow margin of 37.6% enables it to reinvest or return capital consistently
Palo Alto Networks is trading at $205 per share, or 13.9x forward price-to-sales. Is now a good time to buy? See for yourself in our comprehensive research report, it’s free for active Edge members.
Net Cash Position: $59.59 billion (2% of Market Cap)
Started by Stanford students Larry Page and Sergey Brin in a Menlo Park garage, Alphabet (NASDAQ:GOOGL) is the parent company of the eponymous Google Search engine, Google Cloud Platform, and YouTube.
Why Are We Backing GOOGL?
Alphabet’s dominant Google Search sits on the pantheon of the best businesses ever. This is reflected in its robust long-term revenue growth and elite operating margin.
The company’s profit margins have become even higher over time, speaking to its scale advantages and operating efficiency not only in its core Search business but also in Google Cloud Platform and YouTube.
Revenue growth and increasing operating margins are the key ingredients for strong EPS growth. Google has these, and when also factoring in its share repurchases, you can see why EPS has exploded over the long term.
