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.
CarMax (KMX)
Market Cap: $11.98 billion
Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE: KMX) is the largest automotive retailer in the United States.
Why Does KMX Fall Short?
- Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
- Gross margin of 10.6% is below its competitors, leaving less money for marketing and promotions
- 17× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
At $77.92 per share, CarMax trades at 22x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than KMX.
DaVita (DVA)
Market Cap: $12.24 billion
With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE: DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.
Why Are We Cautious About DVA?
- Sizable revenue base leads to growth challenges as its 2.4% annual revenue increases over the last five years fell short of other healthcare companies
- Flat treatments over the past two years suggest it might have to lower prices to accelerate growth
- Projected sales growth of 5% for the next 12 months suggests sluggish demand
DaVita is trading at $153 per share, or 13.6x forward price-to-earnings. To fully understand why you should be careful with DVA, check out our full research report (it’s free).
Illumina (ILMN)
Market Cap: $12.57 billion
Pioneering the ability to read the human genome at unprecedented speed and affordability, Illumina (NASDAQ: ILMN) develops and sells advanced DNA sequencing and microarray technologies that allow researchers and clinicians to analyze genetic variations and functions.
Why Should You Sell ILMN?
- 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
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.8% annually
- Free cash flow margin shrank by 11.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive
Illumina’s stock price of $79.34 implies a valuation ratio of 17.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why ILMN doesn’t pass our bar.
Stocks We Like More
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