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

Not all companies are created equal, and StockStory is here to surface the ones with real upside. Keeping that in mind, here are three cash-producing companies to avoid and some better opportunities instead.

PubMatic (PUBM)

Trailing 12-Month Free Cash Flow Margin: 9%

Founded in 2006 as an online ad platform helping ad sellers, Pubmatic (NASDAQ: PUBM) is a fully integrated cloud-based programmatic advertising platform.

Why Does PUBM Worry Us?

1. Muted 6.6% annual revenue growth over the last three years shows its demand lagged behind its software peers
2. Estimated sales growth of 4.5% for the next 12 months implies demand will slow from its three-year trend
3. High servicing costs result in a relatively inferior gross margin of 64.9% that must be offset through increased usage

At $11.69 per share, PubMatic trades at 1.8x forward price-to-sales. Read our free research report to see why you should think twice about including PUBM in your portfolio.

Lamb Weston (LW)

Trailing 12-Month Free Cash Flow Margin: 1.3%

Best known for its Grown in Idaho brand, Lamb Weston (NYSE: LW) produces and distributes potato products such as frozen french fries and mashed potatoes.

Why Does LW Give Us Pause?

1. Sales are projected to remain flat over the next 12 months as demand decelerates from its three-year trend
2. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 5 percentage points
3. Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital

Lamb Weston is trading at $51.31 per share, or 14.9x forward P/E. Dive into our free research report to see why there are better opportunities than LW.

Agilent (A)

Trailing 12-Month Free Cash Flow Margin: 20.1%

Originally spun off from Hewlett-Packard in 1999 as its measurement and analytical division, Agilent Technologies (NYSE: A) provides analytical instruments, software, services, and consumables for laboratory workflows in life sciences, diagnostics, and applied chemical markets.

Why Are We Wary of A?

1. Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
2. Estimated sales growth of 4.1% for the next 12 months is soft and implies weaker demand
3. Inability to adjust its cost structure while its revenue declined over the last two years led to a 1.1 percentage point drop in the company’s adjusted operating margin

Agilent’s stock price of $115.55 implies a valuation ratio of 20.3x forward P/E. If you’re considering A for your portfolio, see our FREE research report to learn more.

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