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Generating cash is essential for any business, but not all cash-rich companies are great investments. Some produce plenty of cash but fail to allocate it effectively, leading to missed opportunities.

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 that don’t make the cut and some better opportunities instead.

Paychex (PAYX)

Trailing 12-Month Free Cash Flow Margin: 29.5%

One of the oldest service providers in the industry, Paychex (NASDAQ:PAYX) offers its customers payroll and HR software solutions.

Why Does PAYX Give Us Pause?

1. Sales trends were unexciting over the last three years as its 6.6% annual growth was well below the typical software company

2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.8%

Paychex’s stock price of $150.32 implies a valuation ratio of 9.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than PAYX.

IDEX (IEX)

Trailing 12-Month Free Cash Flow Margin: 17%

Founded in 1988, IDEX (NYSE:IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.

Why Do We Pass on IEX?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth

2. Free cash flow margin dropped by 5.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Eroding returns on capital suggest its historical profit centers are aging

IDEX is trading at $180.09 per share, or 21.6x forward P/E. Check out our free in-depth research report to learn more about why IEX doesn’t pass our bar.

Iridium (IRDM)

Trailing 12-Month Free Cash Flow Margin: 33.9%

With a constellation of 66 low-earth orbit satellites providing coverage to every inch of the planet, Iridium Communications (NASDAQ:IRDM) operates a global satellite network that provides voice and data services to customers in remote areas where traditional telecommunications are unavailable.

Why Are We Wary of IRDM?

1. Subscale operations are evident in its revenue base of $841.7 million, meaning it has fewer distribution channels than its larger rivals

2. Free cash flow margin dropped by 3.2 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Underwhelming 4.4% return on capital reflects management’s difficulties in finding profitable growth opportunities