Liquidity indicates a company’s capability to meet debt obligations by converting its assets into liquid cash and equivalents. A company with adequate liquidity always has the capability to deliver higher returns, as stable financial resources can drive business growth.
Investors may want to consider adding four top-ranked stocks, such as Dropbox, Inc. DBX, Ubiquiti Inc. UI, EverQuote, Inc. EVER and Moelis & Company MC to their portfolios to boost returns.
Stocks with high liquidity are often sought after due to their potential for generating strong returns. Nonetheless, investors should exercise caution before investing in these stocks. While high liquidity may suggest that a company is efficiently clearing its debts compared to its peers, it could also indicate that the company is not utilizing its assets as effectively as it could.
Hence, an investor may consider a company’s efficiency level in addition to its liquidity to identify potential winners.
Current Ratio: It measures current assets relative to current liabilities. The ratio gauges a company’s potential to meet short- and long-term debt obligations. A current ratio — the working capital ratio — below 1 indicates that the company has more liabilities than assets. A high current ratio does not always suggest that the company is in good financial shape. It may also indicate that the firm failed to utilize its assets significantly. Hence, a range of 1-3 is considered ideal.
Quick Ratio: Unlike the current ratio, the quick ratio — the “acid-test ratio” or “quick assets ratio” — indicates a company’s ability to pay short-term obligations. It considers inventory, excluding current assets relative to current liabilities. A quick ratio of more than 1 is desirable, like the current ratio.
Cash Ratio: This is the most conservative ratio among the three, considering cash and cash equivalents and invested funds relative to current liabilities. It measures a company’s ability to meet existing debt obligations using the most liquid assets. Though a cash ratio of more than 1 may suggest sound financials, a higher number may indicate inefficiency in cash utilization.
A ratio greater than 1 is always desirable but may not always represent a company’s financial condition.
To pick the best of the lot, we have added asset utilization — a widely used measure of a company’s efficiency — as one of the screening criteria. Asset utilization is the ratio of total sales in the past 12 months to the last four-quarter average of total assets. Though this ratio varies across industries, companies with a ratio higher than their industries can be considered efficient.
We added our proprietary Growth Score to the screen to ensure these liquid and efficient stocks have solid growth potential.
Current Ratio, Quick Ratio, and Cash Ratio between 1 and 3: While liquidity ratios greater than 1 are desirable, significantly high ratios may indicate inefficiency.
Asset utilization is more significant than the industry average: Higher asset utilization than the industry average indicates a company’s efficiency.
Zacks Rank equal to #1: Only Strong Buy-rated stocks can get through. You can see the complete list of today’s Zacks #1 Rank stocks here.
Growth Score less than or equal to B: Back-tested results show that stocks with a Growth Score of A or B handily beat other stocks when combined with a Zacks Rank #1 or 2 (Buy).
These criteria have narrowed the universe of more than 7,700 stocks to only eight.
Here are four of the eight stocks that qualified the screen:
Dropbox offers a cloud-based platform that businesses and individuals can create, access and share digital content globally. It serves more than 700 million registered users across approximately 180 countries.
Recently, DBX reported fourth-quarter 2024 non-GAAP earnings of 73 cents per share, surpassing the Zacks Consensus Estimate by 17.74% and increasing 46% year over year.
Revenues of $643.6 million inched up 1.4% year over year and beat the consensus mark by 0.79%. Total annual recurring revenues were $2.574 billion, up 2% year over year.
Dropbox is benefiting from an expanding user base and strong average revenue per paying user (ARPU) growth. The company exited fourth-quarter 2024 with 18.22 million paying users compared with 18.12 million in the year-ago quarter, while ARPU was $140.06, up 0.9% year over year.
The Zacks Consensus Estimate for 2025 earnings is pegged at $2.54 per share. DBX has a Growth Score of B and a trailing four-quarter earnings surprise of 16.7%, on average.
Ubiquiti, along with its subsidiaries, offers a comprehensive portfolio of networking products and solutions for service providers and enterprises. Its service-provider product platforms offer carrier-class network infrastructure for fixed wireless broadband and wireless backhaul systems and routing; while enterprise product platforms provide wireless local area network (WLAN) infrastructure, video surveillance products and machine-to-machine communication components.
Ubiquiti is benefiting from solid growth in the Enterprise Technology segment, backed by healthy demand in North America, Europe, and the Middle East and Africa regions. Its strategy of consistent dividend payments, while maintaining a sustainable payout ratio, is positive. Solid growth in cash flow from operations underscores efficient resource management.
UI reported strong second-quarter fiscal 2025 results, with both bottom and top lines surpassing the respective Zacks Consensus Estimate. Net sales increased to $599.9 million from $465 million in the prior-year quarter. The healthy demand in multiple segments supported the top line.
The Zacks Consensus Estimate for fiscal 2025 earnings is pegged at $8.22 per share, unchanged in the past seven days. UI has a Growth Score of A and a trailing four-quarter earnings surprise of 7.48%, on average.
EverQuote, headquartered in Cambridge, MA, is an online insurance marketplace. The company's websites allow consumers to shop for auto, home, renters and life insurance.
EverQuote is gaining from its exclusive data assets and technology, deepened focus on core P&C markets and a robust financial profile. It is also focused on streamlining traffic operations, boosting AI-powered bidding solutions and rolling out advanced agent technology platforms, which positions it well for long-term growth. Recovery in automotive and other insurance verticals, given auto carrier recovery and growth in revenue per quote request, bodes well.
In the last reported quarter, total revenues of $147.5 million increased 164.8% year over year. Revenues in the Automotive insurance vertical increased 200% year over year to $135.9 million. Revenues in the Home and Renters insurance vertical totaled $11.3 million, which increased 15% year over year.
The Zacks Consensus Estimate for EVER’s 2025 earnings is pegged at $1.08 per share, up 27 cents in the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 160.7%, on average.
Moelis & Company is a global investment bank, providing strategic and financial advisory services to corporations, governments and financial sponsors across all major industries. The company’s advisory services include mergers & acquisitions, capital markets transactions, recapitalizations and restructurings, and other corporate finance matters like public/private debt and equity transactions.
MC recently reported fourth-quarter 2024 results, with adjusted earnings for the quarter of $1.18 per share, beating the Zacks Consensus Estimate of 46 cents by a huge margin. Total revenues (GAAP basis) for the quarter grew substantially year over year to $438.7 million. This was driven by a rise in average fees earned per completed transaction across all products. Moreover, the top line surpassed the Zacks Consensus Estimate of $338.7 million.
The Zacks Consensus Estimate for MC’s 2025 earnings is pegged at $3.05 per share, up 8 cents in the past seven days. The company has a Growth Score of A and a trailing four-quarter earnings surprise of 82.5%, on average.
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Disclosure: Officers, directors and employees of Zacks Investment Research may own or have sold short securities and/or hold long and/or short positions in options that are mentioned in this material. An affiliated investment advisory firm may own or have sold short securities and/or hold long and/or short positions in options mentioned in this material.
Disclosure: Performance information for Zacks’ portfolios and strategies is available at: https://www.zacks.com/performance.
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