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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 steer clear of and a few better alternatives.

Snap (SNAP)

Trailing 12-Month Free Cash Flow Margin: 5.3%

Founded by Stanford University students Evan Spiegel, Reggie Brown, and Bobby Murphy, and originally called Picaboo, Snapchat (NYSE: SNAP) is an image centric social media network.

Why Are We Cautious About SNAP?

1. Platform monetization efforts took a back seat over the last two years as it focused on growing its users

2. Day-to-day expenses have swelled relative to revenue over the last few years as its EBITDA margin fell by 5.2 percentage points

3. Earnings per share fell by 8.9% annually over the last three years while its revenue grew, showing its incremental sales were much less profitable

Snap’s stock price of $8.24 implies a valuation ratio of 21.4x forward EV/EBITDA. Dive into our free research report to see why there are better opportunities than SNAP.

Baxter (BAX)

Trailing 12-Month Free Cash Flow Margin: 2.5%

With a history dating back to 1931 and products used in over 100 countries, Baxter International (NYSE:BAX) provides essential healthcare products including dialysis therapies, IV solutions, infusion systems, surgical products, and patient monitoring technologies to hospitals and clinics worldwide.

Why Do We Steer Clear of BAX?

1. Annual sales declines of 10.3% for the past two years show its products and services struggled to connect with the market during this cycle

2. Constant currency revenue growth has disappointed over the past two years and shows demand was soft

3. Performance over the past five years shows each sale was less profitable as its earnings per share dropped by 9.2% annually, worse than its revenue

Baxter is trading at $30.90 per share, or 12.3x forward P/E. To fully understand why you should be careful with BAX, check out our full research report (it’s free).

IMAX (IMAX)

Trailing 12-Month Free Cash Flow Margin: 11.1%

Originally developed for World Expo '67 in Montreal as an innovative projection system, IMAX (NYSE:IMAX) provides proprietary large-format cinema technology and systems that deliver immersive movie experiences with enhanced image quality and sound.

Why Does IMAX Worry Us?

1. Sales stagnated over the last five years and signal the need for new growth strategies

2. Negative free cash flow raises questions about the return timeline for its investments

3. Negative returns on capital show that some of its growth strategies have backfired