Two Underperforming Stocks Have Loads of Cash and Encouraging Receivables Turnover

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 |  Includes: NTAP, VMW
by: Kapitall

Here we present two stocks - VMware, Inc. (NYSE:VMW) and NetApp, Inc. (NASDAQ:NTAP) – that have been down over the past quarter; however, these stocks have high cash holdings relative to their avg. quarterly operating expenses and encouraging accounts receivable trends.

We began a screen of approx. 120 companies that have been negative for the past quarter, from which we found those companies with sufficient cash to cover more than 4 quarters of their past year’s average quarterly operating expense.

We calculated the average quarterly operating expense over the last four quarters, and compared it with current cash holdings for each firm. Both companies listed have more than 4x the cash for their avg. quarterly operating expense, translating into coverage of more than 4 quarters of avg. operating expenses without the need to generate revenue.

From this list of underperforming cash kings, we found two stocks with encouraging accounts receivable trends: VMW and NTAP have both seen revenue grow faster than their accounts receivable on a quarterly basis y/y, and accounts receivable as a percentage of current assets has decreased over the same period (from 3 months ending 12/31/2009 vs. 3 months ending 12/31/2010).

Do you think this recent underperformance is an opportunity to buy in? Read below, using this list as a starting point for your own analysis.

Cash, operating expense, and accounts receivable data sourced from Google Finance, recent developments sourced from Reuters, all other data sourced from Finviz.

Interactive Chart: Press Play to compare changes in analyst ratings and annual performance for both companies mentioned below. Analyst ratings sourced from Zacks Investment Research. Note: The numbers on top of items represent the forward P/E ratio, if available.



1. VMware, Inc. (VMW): Technical & System Software Industry. Market cap of $32.10B. The stock has lost 13.89% over the last quarter.

Current cash holdings at $3.32B vs. average quarterly operating expenses over the last four quarters at $607.34M. Cash/Avg. Quarterly Operating Expenses at 5.5, i.e. the company can go 5.5 quarters without generating revenue and still cover the average quarterly operating costs.

MRQ Revenue grew by 37.40% on a y/y basis, while accounts receivable grew by 19.55%. MRQ accounts receivable, as a percentage of current assets, decreased from 17.62% to 15.59% year-over-year. The stock has gained 41.33% over the last year.

Recent developments: Announced that the Board had authorized a $550M stock repurchase program through the end of 2012 (Feb. 2011). Announced FY11 and Q1 revenue guidance above analysts’ estimates (Jan. 2011).

2. NetApp, Inc. (NTAP): Data Storage Devices Industry. Market cap of $17.64B. The stock has lost 13.31% over the last quarter.

Current cash holdings at $4.76B vs. average quarterly operating expenses over the last four quarters at $1.01B. Cash/Avg. Quarterly Operating Expenses at 4.7, i.e. the company can go 4.7 quarters without generating revenue and still cover the average quarterly operating costs.

MRQ Revenue grew by 25.35% on a y/y basis, while accounts receivable grew by 18.35%. MRQ accounts receivable, as a percentage of current assets, decreased from 11.39% to 9.67% year-over-year. The stock has gained 44.56% over the last year.

Recent developments: Announced a definitive agreement to buy Engenio external storage systems business from LSI Corp. (NASDAQ:LSI) for $480M (Mar. 2011). Announced Q4 2011 earnings guidance below analysts’ estimates, while revenue guidance was in line with estimates (Feb. 2011).

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.