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 avoid and some other investments you should consider instead.
Pegasystems (PEGA)
Market Cap: $10.36 billion
With a "Center-out Business Architecture" approach that transcends organizational silos, Pegasystems (NASDAQ: PEGA) develops software that helps organizations automate workflows and use artificial intelligence to improve customer experiences and business processes.
Why Are We Hesitant About PEGA?
- Sales trends were unexciting over the last five years as its 11.7% annual growth was below the typical software company
- Estimated sales growth of 4.2% for the next 12 months implies demand will slow from its two-year trend
- Competitive market means the company must spend more on sales and marketing to stand out even if the return on investment is low
At $60.60 per share, Pegasystems trades at 6.2x forward price-to-sales. Read our free research report to see why you should think twice about including PEGA in your portfolio.
Constellation Brands (STZ)
Market Cap: $22.61 billion
With a presence in more than 100 countries, Constellation Brands (NYSE: STZ) is a globally renowned producer and marketer of beer, wine, and spirits.
Why Does STZ Fall Short?
- 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
- Estimated sales decline of 6.1% for the next 12 months implies an even more challenging demand environment
- Underwhelming 9% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
Constellation Brands is trading at $129.22 per share, or 10.9x forward P/E. Dive into our free research report to see why there are better opportunities than STZ.
C.H. Robinson Worldwide (CHRW)
Market Cap: $18.06 billion
Engaging in contracts with tens of thousands of transportation companies, C.H. Robinson (NASDAQ: CHRW) offers freight transportation and logistics services.
Why Does CHRW Give Us Pause?
- Annual sales declines of 5.4% for the past two years show its products and services struggled to connect with the market during this cycle
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 7.4%
- Diminishing returns on capital suggest its earlier profit pools are drying up
C.H. Robinson Worldwide’s stock price of $153 implies a valuation ratio of 27.1x forward P/E. Check out our free in-depth research report to learn more about why CHRW doesn’t pass our bar.
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