A company that generates cash isn’t automatically a winner. Some businesses stockpile cash but fail to reinvest wisely, limiting their ability to expand.

Luckily for you, we built StockStory to help you separate the good from the bad. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

Sensata Technologies (ST)

Trailing 12-Month Free Cash Flow Margin: 10.8%

Originally a temperature sensor control maker and a subsidiary of Texas Instruments for 60 years, Sensata Technology Holdings (NYSE: ST) is a leading supplier of analog sensors used in industrial and transportation applications, best known for its dominant position in the tire pressure monitoring systems in cars.

Why Are We Out on ST?

1. Annual revenue growth of 2.7% over the last five years was below our standards for the semiconductor sector

2. Sales are projected to tank by 3.6% over the next 12 months as its demand continues evaporating

3. Expenses have increased as a percentage of revenue over the last five years as its operating margin fell by 10.3 percentage points

Sensata Technologies’s stock price of $26.87 implies a valuation ratio of 8.4x forward P/E. If you’re considering ST for your portfolio, see our FREE research report to learn more.

Compass (COMP)

Trailing 12-Month Free Cash Flow Margin: 2%

Fueled by its mission to replace the "paper-driven, antiquated workflow" of buying a house, Compass (NYSE:COMP) is a digital-first company operating a residential real estate brokerage in the United States.

Why Does COMP Fall Short?

1. Sluggish trends in its principal agents suggest customers aren’t adopting its solutions as quickly as the company hoped

2. Poor expense management has led to operating margin losses

3. Poor free cash flow margin of 1.3% for the last two years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends

At $6.19 per share, Compass trades at 14.1x forward P/E. Read our free research report to see why you should think twice about including COMP in your portfolio, it’s free.

Select Medical (SEM)

Trailing 12-Month Free Cash Flow Margin: 5.8%

With a nationwide network spanning 46 states and over 2,700 healthcare facilities, Select Medical (NYSE:SEM) operates critical illness recovery hospitals, rehabilitation hospitals, outpatient rehabilitation clinics, and occupational health centers across the United States.

Why Should You Dump SEM?

1. Declining admissions over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases

2. Sales are expected to decline once again over the next 12 months as it continues working through a challenging demand environment

3. Free cash flow margin shrank by 13.2 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive