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. That said, here are two companies with net cash positions that can leverage their balance sheets to grow and one that may struggle.
One Stock to Sell:
East West Bank (EWBC)
Net Cash Position: $1.59 billion (9.7% of Market Cap)
As the largest independent bank in the U.S. focused on bridging financial services between America and Asia, East West Bancorp (NASDAQ:EWBC) operates a commercial bank that provides personal and business banking services with a unique focus on facilitating U.S.-Asia cross-border transactions.
Why Does EWBC Fall Short?
- Muted 5.5% annual revenue growth over the last two years shows its demand lagged behind its banking peers
- Net interest margin shrank by 25.3 basis points (100 basis points = 1 percentage point) over the last two years, suggesting the profitability of its loan book is decreasing or the market is becoming more competitive
- Earnings per share lagged its peers over the last two years as they only grew by 5.4% annually
East West Bank’s stock price of $119.75 implies a valuation ratio of 1.7x forward P/B. Check out our free in-depth research report to learn more about why EWBC doesn’t pass our bar.
Two Stocks to Watch:
DoorDash (DASH)
Net Cash Position: $986 million (1.3% of Market Cap)
Founded by Stanford students with the intent to build “the local, on-demand FedEx", DoorDash (NYSE:DASH) operates an on-demand food delivery platform.
Why Are We Bullish on DASH?
- Orders have increased by an average of 20% annually, giving it the potential for margin-accretive growth if it can develop valuable complementary products and features
- Incremental sales over the last three years have been highly profitable as its earnings per share increased by 1,009% annually, topping its revenue gains
- Free cash flow margin grew by 12.6 percentage points over the last few years, giving the company more chips to play with
At $176.23 per share, DoorDash trades at 23.6x forward EV/EBITDA. Is now the time to initiate a position? Find out in our full research report, it’s free.
EPAM (EPAM)
Net Cash Position: $1.08 billion (11% of Market Cap)
Founded in 1993 during the early days of offshore software development, EPAM Systems (NYSE:EPAM) provides digital engineering, cloud, and AI transformation services to help global enterprises and startups modernize their technology systems and create digital products.
Why Do We Like EPAM?
- Economies of scale give it more fixed cost leverage than its smaller competitors
- EPAM is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders
- Market-beating returns on capital illustrate that management has a knack for investing in profitable ventures
EPAM is trading at $177.51 per share, or 15.5x forward P/E. Is now the right time to buy? See for yourself in our full research report, it’s free.
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