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. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Microchip Technology (MCHP)
Market Cap: $24.73 billion
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Is MCHP Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last five years
- Forecasted revenue decline of 13.9% for the upcoming 12 months implies demand will fall even further
- 13.4 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
Microchip Technology’s stock price of $46.70 implies a valuation ratio of 24.8x forward P/E. Check out our free in-depth research report to learn more about why MCHP doesn’t pass our bar.
Warner Music Group (WMG)
Market Cap: $15.64 billion
Launching the careers of legendary artists like Frank Sinatra, Warner Music Group (NASDAQ:WMG) is a music company managing a diverse portfolio of artists, recordings, and music publishing services worldwide.
Why Do We Think Twice About WMG?
- 4.6% annual revenue growth over the last two years was slower than its consumer discretionary peers
- Projected sales growth of 3.6% for the next 12 months suggests sluggish demand
- ROIC of 10.1% reflects management’s challenges in identifying attractive investment opportunities
At $30.66 per share, Warner Music Group trades at 22x forward P/E. To fully understand why you should be careful with WMG, check out our full research report (it’s free).
Rocket Lab (RKLB)
Market Cap: $10.03 billion
Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.
Why Does RKLB Worry Us?
- Issuance of new shares over the last two years caused its earnings per share to fall by 31.2% annually while its revenue grew
- Cash-burning history makes us doubt the long-term viability of its business model
- Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders
Rocket Lab is trading at $21.93 per share, or 19.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RKLB.
Stocks We Like More
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Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Comfort Systems (+751% five-year return). Find your next big winner with StockStory today for free.