Mid-cap stocks have the best odds of scaling into $100 billion corporations thanks to their tested business models and large addressable markets. But the many opportunities in front of them attract significant competition, spanning from industry behemoths with seemingly infinite resources to small, nimble players with chips on their shoulders.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Best Buy (BBY)
Market Cap: $12.14 billion
With humble beginnings as a stereo equipment seller, Best Buy (NYSE: BBY) now sells a broad selection of consumer electronics, appliances, and home office products.
Why Is BBY Risky?
- Store closures and disappointing same-store sales suggest demand is sluggish and it’s rightsizing its operations
- Disappointing same-store sales over the past two years show customers aren’t responding well to its product selection and store experience
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 22.5%
Best Buy is trading at $57.70 per share, or 9.2x forward P/E. To fully understand why you should be careful with BBY, check out our full research report (it’s free).
Equifax (EFX)
Market Cap: $20.51 billion
Holding detailed financial records on over 800 million consumers worldwide and dating back to 1899, Equifax (NYSE: EFX) is a global data analytics company that collects, analyzes, and sells consumer and business credit information to lenders, employers, and other businesses.
Why Are We Wary of EFX?
- Efficiency has decreased over the last five years as its adjusted operating margin fell by 3.9 percentage points
- Earnings per share lagged its peers over the last five years as they only grew by 1.4% annually
Equifax’s stock price of $173.05 implies a valuation ratio of 19.5x forward P/E. Dive into our free research report to see why there are better opportunities than EFX.
T. Rowe Price (TROW)
Market Cap: $22.09 billion
Founded in 1937 by Thomas Rowe Price Jr., who pioneered the growth stock investing approach, T. Rowe Price (NASDAQ: TROW) is an investment management firm that offers mutual funds, advisory services, and retirement planning solutions to individuals and institutions.
Why Do We Think Twice About TROW?
- Annual revenue growth of 2.6% over the last five years was below our standards for the financials sector
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 1.4% annually while its revenue grew
At $102.16 per share, T. Rowe Price trades at 11x forward P/E. Check out our free in-depth research report to learn more about why TROW doesn’t pass our bar.
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