Q: What does it mean if a stock is “trading below cash”?
A: It refers to a company that has more cash in its coffers than its entire market capitalization.
In other words, it has more cash per share than its share price — and is therefore very enticing to many investors, making them think it can’t help but be a bargain.
But hold on.
Most Read Business Stories
- FAA safety engineer goes public to slam the agency's oversight of Boeing's 737 MAX
- MacKenzie Scott marries Seattle teacher after Bezos divorce
- 55,000 in Washington state may have to pay back thousands in jobless benefits
- Microsoft’s $10 billion Pentagon deal at risk amid Amazon fight
- 1 house, 45 offers: Homebuyers in Western Washington hard-pressed as supply remains scarce
The money is probably being spent, and it might not be there for long.
Many companies in trouble have a high “burn rate,” meaning that significantly more money is going out than is coming in.
As the folks at investopedia.com have explained, “Even a palace isn’t worth much if it’s on fire.”
Still, it can be well worth looking for healthy, growing companies with lots of cash and relatively low prices. They just don’t need to be trading below cash.
The Motley Fool