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. That said, here are three cash-producing companies that don’t make the cut and some better opportunities instead.

AECOM (ACM)

Trailing 12-Month Free Cash Flow Margin: 3.9%

Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE: ACM) provides various infrastructure consulting services.

Why Are We Wary of ACM?

1. Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 4% declines over the past two years
2. Responsiveness to unforeseen market trends is restricted due to its substandard operating margin profitability
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 4.4% for the last five years

AECOM’s stock price of $85.89 implies a valuation ratio of 14.2x forward P/E. Dive into our free research report to see why there are better opportunities than ACM.

DXC (DXC)

Trailing 12-Month Free Cash Flow Margin: 5.6%

Born from the 2017 merger of Computer Sciences Corporation and HP Enterprise's services business, DXC Technology (NYSE: DXC) is a global IT services company that helps businesses transform their technology infrastructure, applications, and operations.

Why Do We Steer Clear of DXC?

1. Organic revenue growth fell short of our benchmarks over the past two years and implies it may need to improve its products, pricing, or go-to-market strategy
2. Projected sales decline of 1.9% over the next 12 months indicates demand will continue deteriorating
3. Below-average returns on capital indicate management struggled to find compelling investment opportunities, and its shrinking returns suggest its past profit sources are losing steam

DXC is trading at $12.48 per share, or 4.1x forward P/E. If you’re considering DXC for your portfolio, see our FREE research report to learn more.

Root (ROOT)

Trailing 12-Month Free Cash Flow Margin: 12.7%

Pioneering a data-driven approach that rewards good driving habits, Root (NASDAQ: ROOT) is a technology-driven auto insurance company that uses mobile apps to acquire customers and data science to price policies based on individual driving behavior.

Why Does ROOT Give Us Pause?

1. Products and services are facing significant credit quality challenges during this cycle as book value per share has declined by 24.6% annually over the last five years
2. Negative return on equity shows that some of its growth strategies have backfired

At $46.37 per share, Root trades at 2x forward P/B. To fully understand why you should be careful with ROOT, check out our full research report (it’s free).

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