Many investors pay attention to mid-cap stocks because they have established business models and expansive market opportunities. However, their paths to becoming $100 billion corporations are ripe with competition, ranging from giants with vast resources to agile upstarts eager to disrupt the status quo.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Church & Dwight (CHD)
Market Cap: $26.9 billion
Best known for its Arm & Hammer baking soda, Church & Dwight (NYSE:CHD) is a household and personal care products company with a vast portfolio that spans laundry detergent to toothbrushes to hair removal creams.
Why Does CHD Worry Us?
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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
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Estimated sales growth of 3% for the next 12 months implies demand will slow from its three-year trend
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Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 4.8 percentage points
At $109.37 per share, Church & Dwight trades at 29.4x forward price-to-earnings. Read our free research report to see why you should think twice about including CHD in your portfolio, it’s free .
NVR (NVR)
Market Cap: $21.48 billion
Known for its unique land acquisition strategy, NVR (NYSE:NVR) is a respected homebuilder and mortgage company in the United States.
Why Are We Wary of NVR?
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Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts
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Projected sales growth of 2.4% for the next 12 months suggests sluggish demand
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Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.5% annually
NVR is trading at $7,182 per share, or 14.1x forward price-to-earnings. If you’re considering NVR for your portfolio, see our FREE research report to learn more .
Penumbra (PEN)
Market Cap: $10.84 billion
Founded in 2004, Penumbra (NYSE:PEN) designs and manufactures medical devices, focusing on the treatment of neurological and vascular diseases.
Why Are We Hesitant About PEN?
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Smaller revenue base of $1.2 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
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Poor free cash flow margin of 1.9% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
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Negative returns on capital show management lost money while trying to expand the business
Penumbra’s stock price of $281.96 implies a valuation ratio of 73.6x forward price-to-earnings. Check out our free in-depth research report to learn more about why PEN doesn’t pass our bar .
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