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. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.

Church & Dwight (CHD)

Market Cap: $26.9 billion

Best known for its Arm & Hammer baking soda, Church & Dwight (NYSE: CHD) is a household and personal care products company with a vast portfolio that spans laundry detergent to toothbrushes to hair removal creams.

Why Does CHD Worry Us?

1. 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
2. Estimated sales growth of 3% for the next 12 months implies demand will slow from its three-year trend
3. Expenses have increased as a percentage of revenue over the last year as its operating margin fell by 4.8 percentage points

At $109.37 per share, Church & Dwight trades at 29.4x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than CHD.

NVR (NVR)

Market Cap: $21.48 billion

Known for its unique land acquisition strategy, NVR (NYSE: NVR) is a respected homebuilder and mortgage company in the United States.

Why Are We Wary of NVR?

1. Flat backlog over the past two years has disappointed and shows fewer customers signed long-term contracts
2. Projected sales growth of 2.4% for the next 12 months suggests sluggish demand
3. Earnings growth underperformed the sector average over the last two years as its EPS grew by just 1.5% annually

NVR is trading at $7,182 per share, or 14.1x forward price-to-earnings. Check out our free in-depth research report to learn more about why NVR doesn’t pass our bar.

Penumbra (PEN)

Market Cap: $10.84 billion

Founded in 2004, Penumbra (NYSE: PEN) designs and manufactures medical devices, focusing on the treatment of neurological and vascular diseases.

Why Are We Hesitant About PEN?

1. Smaller revenue base of $1.2 billion means it hasn’t achieved the economies of scale that some industry juggernauts enjoy
2. Poor free cash flow margin of 1.9% for the last five years limits its freedom to invest in growth initiatives, execute share buybacks, or pay dividends
3. Negative returns on capital show management lost money while trying to expand the business

Penumbra’s stock price of $281.96 implies a valuation ratio of 73.6x forward price-to-earnings. To fully understand why you should be careful with PEN, check out our full research report (it’s free).

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