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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Guardant Health (GH)
Market Cap: $17.36 billion
Pioneering the field of "liquid biopsy" with technology that can identify cancer-specific genetic mutations from a simple blood draw, Guardant Health (NASDAQ: GH) develops blood tests that detect and monitor cancer by analyzing tumor DNA in the bloodstream, helping doctors make treatment decisions without invasive biopsies.
Why Is GH Not Exciting?
- Revenue base of $1.08 billion indicates it’s still subscale compared to its larger peers (though this creates opportunities to expand into untapped markets)
- Cash-burning history makes us doubt the long-term viability of its business model
- Negative earnings profile makes it challenging to secure favorable financing terms from lenders
Guardant Health is trading at $149.65 per share, or 14.5x forward price-to-sales. To fully understand why you should be careful with GH, check out our full research report (it’s free).
CoStar (CSGP)
Market Cap: $13.33 billion
With a research department that makes over 10,000 property updates daily to its 35-year-old database, CoStar Group (NASDAQ: CSGP) provides comprehensive real estate data, analytics, and online marketplaces for commercial and residential properties in the U.S. and U.K.
Why Do We Think Twice About CSGP?
- Earnings per share fell by 1.6% annually over the last five years while its revenue grew, showing its incremental sales were much less profitable
- Free cash flow margin dropped by 17.4 percentage points over the last five years, implying the company became more capital intensive as competition picked up
- Eroding returns on capital from an already low base indicate that management’s recent investments are destroying value
CoStar’s stock price of $28.74 implies a valuation ratio of 20.1x forward P/E. Check out our free in-depth research report to learn more about why CSGP doesn’t pass our bar.
KeyCorp (KEY)
Market Cap: $24.1 billion
Tracing its roots back to 1849 during the California Gold Rush era, KeyCorp (NYSE: KEY) operates KeyBank, a full-service regional bank providing retail and commercial banking, wealth management, and investment services across 15 states.
Why Does KEY Fall Short?
- Muted 3.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Net interest margin of 2.6% is well below other banks, signaling its loans aren’t very profitable
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.5% annually
At $22.97 per share, KeyCorp trades at 1.4x forward P/B. If you’re considering KEY for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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