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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 - Free Report) , Paychex Inc. (PAYX - Free Report) , and Arista Networks (ANET - Free Report) – 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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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).
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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 - Free Report) , Paychex Inc. (PAYX - Free Report) , and Arista Networks (ANET - Free Report) – 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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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 - Free Report) , Paychex Inc. (PAYX - Free Report) , and Arista Networks (ANET - Free Report) – 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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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).
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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.
Image Source: Zacks Investment Research
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 - Free Report) , Paychex Inc. (PAYX - Free Report) , and Arista Networks (ANET - Free Report) – 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.