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. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.

Yum China (YUMC)

Market Cap: $18.16 billion

One of China’s largest restaurant companies, Yum China (NYSE: YUMC) is an independent entity spun off from Yum! Brands in 2016.

Why Does YUMC Fall Short?

1. Large revenue base makes it harder to increase sales quickly, and its annual revenue growth of 5.1% over the last six years was below our standards for the restaurant sector
2. Disappointing same-store sales over the past two years show customers aren’t responding well to its menu offerings and dining experience
3. Lacking pricing power results in an inferior gross margin of 20.3% that must be offset by turning more tables

At $51.38 per share, Yum China trades at 18.7x forward P/E. Dive into our free research report to see why there are better opportunities than YUMC.

XPO (XPO)

Market Cap: $21.3 billion

Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE: XPO) is a transportation company specializing in expedited shipping services.

Why Does XPO Worry Us?

1. 2.6% annual revenue growth over the last two years was slower than its industrials peers
2. Gross margin of 17.3% is below its competitors, leaving less money to invest in areas like marketing and R&D
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 1.8% for the last five years

XPO’s stock price of $182.21 implies a valuation ratio of 42.2x forward P/E. Read our free research report to see why you should think twice about including XPO in your portfolio.

Allegion (ALLE)

Market Cap: $12.27 billion

Allegion plc (NYSE: ALLE) is a provider of security products and solutions that keep people and assets safe and secure in various environments.

Why Are We Cautious About ALLE?

1. Organic sales performance over the past two years indicates the company may need to make strategic adjustments or rely on M&A to catalyze faster growth
2. Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.2%
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Allegion is trading at $143.11 per share, or 16.3x forward P/E. Check out our free in-depth research report to learn more about why ALLE doesn’t pass our bar.

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