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.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Entegris (ENTG)
Market Cap: $19.64 billion
With fabs representing the company’s largest customer type, Entegris (NASDAQ:ENTG) supplies products that purify, protect, and generally ensure the integrity of raw materials needed for advanced semiconductor manufacturing.
Why Are We Hesitant About ENTG?
- Flat sales over the last two years suggest it must find different ways to grow during this cycle
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 15.2%
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
Entegris is trading at $131.77 per share, or 31.3x forward P/E. If you’re considering ENTG for your portfolio, see our FREE research report to learn more.
Toll Brothers (TOL)
Market Cap: $12.37 billion
Started by two brothers who started by building and selling just one home in Pennsylvania, today Toll Brothers (NYSE:TOL) is a luxury homebuilder across the United States.
Why Are We Wary of TOL?
- Demand cratered as it couldn’t win new orders over the past two years, leading to an average 8.1% decline in its backlog
- Projected sales growth of 1.4% for the next 12 months suggests sluggish demand
- Earnings per share have contracted by 8.1% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
At $134.26 per share, Toll Brothers trades at 10x forward P/E. Dive into our free research report to see why there are better opportunities than TOL.
BioMarin Pharmaceutical (BMRN)
Market Cap: $12.86 billion
Pioneering treatments for conditions that often had no previous therapeutic options, BioMarin Pharmaceutical (NASDAQ:BMRN) develops and commercializes therapies that address the root causes of rare genetic disorders, particularly those affecting children.
Why Do We Think Twice About BMRN?
- Efficiency has decreased over the last two years as its adjusted operating margin fell by 4.5 percentage points
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
- High net-debt-to-EBITDA ratio of 6× increases the risk of forced asset sales or dilutive financing if operational performance weakens
BioMarin Pharmaceutical’s stock price of $66.43 implies a valuation ratio of 10.6x forward P/E. Check out our free in-depth research report to learn more about why BMRN doesn’t pass our bar.
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