3 Companies Boasting Strong Balance Sheets
The extensive list of stocks investors can choose from can undoubtedly become overwhelming, leaving them unsure where to park their hard-earned cash.
However, targeting companies with favorable balance sheet characteristics, such as a low debt load, can help filter out bad apples.
Debt can limit a company's flexibility and ability to invest in growth opportunities, including R&D, tapping into new markets, or even hiring more talent.
And, of course, when a company’s debt load is heavy, it becomes more vulnerable to economic downturns or other forces that could negatively impact business.
Three companies with a light debt load – Ethan Allen Interiors Inc. ETD, Paychex Inc. PAYX, and Arista Networks ANET – could all be considered.
Below is a chart illustrating the performance of all three over the last year, with the S&P 500 blended in as a benchmark.
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Ethan Allen Interiors Inc.
Ethan Allen Interiors is a leader in interior design, selling a full range of home furnishings through a retail network of design centers and its online website. The company has a clean balance sheet with zero total debt and cash and equivalents of $142 million as of its latest quarter.
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ETD’s 27.5% TTM return on equity (ROE) is impressive, well above the Zacks Retail and Wholesale sector average of 16.3%.
ETD’s high ROE shows that the company has successfully generated profits from existing assets, undoubtedly a positive signal.
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Paychex Inc.
Paychex is a recognized leader in the payroll, human resource, and benefits outsourcing industry. PAYX’s earnings outlook has drifted higher over the last several months, pushing it into a Zacks Rank #2 (Buy).
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The company exited its latest quarter with $1.3 billion in cash and roughly $875 million in total debt, indicating an advantageous ability to wipe out obligations easily.
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In addition, PAYX’s 45.5% TTM ROE is well above its Zacks Business Services sector average of 18.5%. And as shown in the chart below, the value is visibly trending in the direction investors want to see.
Image Source: Zacks Investment Research
Arista Networks
Arista Networks provides cloud networking solutions for data centers and cloud computing environments. The company exited its latest quarter with $3.4 billion in cash and equivalents and total debt of a mere $57 million.
Further, the company has had little issue exceeding quarterly estimates, surpassing the Zacks Consensus EPS Estimate by double-digit percentages in back-to-back quarters.
In its latest release, ANET beat the Zacks Consensus EPS Estimate by nearly 20% and reported revenue 11% above expectations.
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Bottom Line
Companies reflecting favorable balance sheet characteristics are attractive investments, as these companies are better equipped to weather negative business or economic developments.
All three companies above – Ethan Allen Interiors Inc. ETD, Paychex Inc. PAYX, and Arista Networks ANET – carry a very manageable debt load paired with a solid cash pile.
For those that like to target companies less vulnerable to downturns, all three deserve a watchlist spot.
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Paychex, Inc. (PAYX) : Free Stock Analysis Report
Arista Networks, Inc. (ANET) : Free Stock Analysis Report
Ethan Allen Interiors Inc. (ETD) : Free Stock Analysis Report
