The Nasdaq 100 (^NDX) is home to some of the biggest success stories in tech and growth investing. However, certain stocks in the index face challenges like profitability concerns, rising costs, or shifts in market trends.
With rapid innovation comes rapid change, and StockStory is here to help you identify which Nasdaq 100 stocks are still worth your money. That said, here is one Nasdaq 100 stock that could lead the market and two that may face some trouble.
Two Stocks to Sell:
Microchip Technology (MCHP)
Market Cap: $34.09 billion
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Do We Think MCHP Will Underperform?
- Annual sales declines of 4.2% for the past five years show its products and services struggled to connect with the market during this cycle
- Operating margin declined by 17.6 percentage points over the last five years as its sales cratered
- 15.8 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
At $63.29 per share, Microchip Technology trades at 36.5x forward P/E. Check out our free in-depth research report to learn more about why MCHP doesn’t pass our bar.
CoStar (CSGP)
Market Cap: $37.69 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 Does CSGP Worry Us?
- Incremental sales over the last five years were much less profitable as its earnings per share fell by 3.7% annually while its revenue grew
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 15.8 percentage points
- Waning returns on capital from an already weak starting point displays the inefficacy of management’s past and current investment decisions
CoStar’s stock price of $88.97 implies a valuation ratio of 83x forward P/E. Read our free research report to see why you should think twice about including CSGP in your portfolio.
One Stock to Buy:
DexCom (DXCM)
Market Cap: $29.64 billion
Founded in 1999 and receiving its first FDA approval in 2006, DexCom (NASDAQ: DXCM) develops and sells continuous glucose monitoring systems that allow people with diabetes to track their blood sugar levels without repeated finger pricks.
Why Is DXCM a Top Pick?
- Average organic revenue growth of 17.8% over the past two years demonstrates its ability to expand independently without relying on acquisitions
- Earnings growth has trumped its peers over the last five years as its EPS has compounded at 17.5% annually
- Free cash flow margin expanded by 8.6 percentage points over the last five years, providing additional flexibility for investments and share buybacks/dividends
DexCom is trading at $75.71 per share, or 32.5x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
High-Quality Stocks for All Market Conditions
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