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.
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 two companies with net cash positions that balance growth with stability and one with hidden risks.
One Stock to Sell:
M&T Bank (MTB)
Net Cash Position: $2.95 billion (10% of Market Cap)
Tracing its roots back to 1856 when it was founded as Manufacturers and Traders Bank in Buffalo, New York, M&T Bank (NYSE: MTB) is a regional bank holding company that provides retail and commercial banking, trust, wealth management, and investment services to consumers and businesses.
Why Is MTB Not Exciting?
- Annual revenue growth of 1.4% over the last two years was below our standards for the banking sector
- Earnings growth over the last two years fell short of the peer group average as its EPS only increased by 4.2% annually
- Estimated tangible book value per share growth of 4.5% for the next 12 months implies profitability will slow from its two-year trend
At $199.56 per share, M&T Bank trades at 1.1x forward P/B. Dive into our free research report to see why there are better opportunities than MTB.
Two Stocks to Buy:
Palantir Technologies (PLTR)
Net Cash Position: $6.95 billion (1.9% of Market Cap)
Named after the all-seeing stones in "Lord of the Rings," Palantir Technologies (NASDAQ: PLTR) develops software platforms that help government agencies and enterprises integrate, analyze, and operationalize their data for decision-making.
Why Are We Bullish on PLTR?
- Billings have averaged 59.5% growth over the last year, showing it’s securing new contracts that could potentially increase in value over time
- Software platform has product-market fit given the rapid recovery of its customer acquisition costs
- PLTR is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
Palantir Technologies is trading at $152.19 per share, or 53.6x forward price-to-sales. Is now a good time to buy? Find out in our full research report, it’s free.
Watts Water Technologies (WTS)
Net Cash Position: $194.1 million (1.9% of Market Cap)
Founded in 1874, Watts Water (NYSE: WTS) specializes in manufacturing water products and systems for residential, commercial, and industrial applications globally.
Why Will WTS Beat the Market?
- 10.1% annual revenue growth over the last five years surpassed the sector average as its offerings resonated with customers
- Share buybacks catapulted its annual earnings per share growth to 22.2%, which outperformed its revenue gains over the last five years
- Free cash flow margin increased by 6.1 percentage points over the last five years, giving the company more capital to invest or return to shareholders
Watts Water Technologies’s stock price of $303.30 implies a valuation ratio of 26.3x forward P/E. Is now the time to initiate a position? See for yourself in our in-depth research report, it’s free.
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