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3 Mid-Cap Stocks We’re Skeptical Of

RL Cover Image

Mid-cap stocks often strike the right balance between having proven business models and market opportunities that can support $100 billion corporations. However, they face intense competition from scaled industry giants and can be disrupted by new innovative players vying for a slice of the pie.

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 swipe left on and some alternatives you should look into instead.

Ralph Lauren (RL)

Market Cap: $19.91 billion

Originally founded as a necktie company, Ralph Lauren (NYSE: RL) is an iconic American fashion brand known for its classic and sophisticated style.

Why Are We Cautious About RL?

  1. Lackluster 7.9% annual revenue growth over the last two years indicates the company is losing ground to competitors
  2. Underwhelming constant currency revenue performance over the past two years suggests its product offering at current prices doesn’t resonate with customers
  3. Estimated sales growth of 5% for the next 12 months implies demand will slow from its two-year trend

Ralph Lauren is trading at $331.65 per share, or 20.9x forward P/E. Read our free research report to see why you should think twice about including RL in your portfolio.

Labcorp (LH)

Market Cap: $21.54 billion

With over 600 million tests performed annually and involvement in 90% of FDA-approved drugs in 2023, Labcorp (NYSE: LH) provides laboratory testing services and drug development solutions to doctors, hospitals, pharmaceutical companies, and patients worldwide.

Why Are We Hesitant About LH?

  1. Core business is underperforming as its organic revenue has disappointed over the past two years, suggesting it might need acquisitions to stimulate growth
  2. Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 12.3 percentage points
  3. Diminishing returns on capital suggest its earlier profit pools are drying up

At $260.04 per share, Labcorp trades at 15.1x forward P/E. Check out our free in-depth research report to learn more about why LH doesn’t pass our bar.

Gartner (IT)

Market Cap: $16.31 billion

With over 2,500 research experts guiding organizations through complex technology landscapes, Gartner (NYSE: IT) provides research, advisory services, and conferences that help executives make better decisions about technology and other business priorities.

Why Do We Think Twice About IT?

  1. Estimated sales growth of 2.7% for the next 12 months implies demand will slow from its two-year trend
  2. Expenses have increased as a percentage of revenue over the last five years as its adjusted operating margin fell by 4.4 percentage points
  3. Free cash flow margin shrank by 9.3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Gartner’s stock price of $226.42 implies a valuation ratio of 17.2x forward P/E. To fully understand why you should be careful with IT, check out our full research report (it’s free for active Edge members).

High-Quality Stocks for All Market Conditions

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