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. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Applied Industrial (AIT)
Market Cap: $11.35 billion
Formerly called The Ohio Ball Bearing Company, Applied Industrial (NYSE: AIT) distributes industrial products–everything from power tools to industrial valves–and services to a wide variety of industries.
Why Are We Wary of AIT?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Estimated sales growth of 5.8% for the next 12 months is soft and implies weaker demand
- Earnings per share lagged its peers over the last two years as they only grew by 5.4% annually
Applied Industrial is trading at $307.09 per share, or 26.6x forward P/E. Dive into our free research report to see why there are better opportunities than AIT.
IDEX (IEX)
Market Cap: $15.45 billion
Founded in 1988, IDEX (NYSE: IEX) is a global manufacturer specializing in highly engineered products such as pumps, flow meters, and fluidics systems for various industries.
Why Does IEX Worry Us?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Earnings per share lagged its peers over the last two years as they only grew by 1.2% annually
- Waning returns on capital imply its previous profit engines are losing steam
IDEX’s stock price of $208.32 implies a valuation ratio of 23.7x forward P/E. If you’re considering IEX for your portfolio, see our FREE research report to learn more.
Jazz Pharmaceuticals (JAZZ)
Market Cap: $15.05 billion
Originally founded in 2003 and now headquartered in Ireland following a 2012 tax inversion merger, Jazz Pharmaceuticals (NASDAQGS:JAZZ) develops and markets medicines for sleep disorders, epilepsy, and cancer, with a focus on treatments for patients with limited therapeutic options.
Why Are We Hesitant About JAZZ?
- Muted 7.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 21.5 percentage points
- Revenue growth over the past five years was nullified by the company’s new share issuances as its earnings per share fell by 4.2% annually
At $238.47 per share, Jazz Pharmaceuticals trades at 3.7x forward price-to-sales. Check out our free in-depth research report to learn more about why JAZZ doesn’t pass our bar.
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