3 Mid-Cap Stocks Walking a Fine Line

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.

CarMax (KMX)

Market Cap: $11.98 billion

Known for its transparent, customer-centric approach and wide selection of vehicles, Carmax (NYSE:KMX) is the largest automotive retailer in the United States.

Why Does KMX Fall Short?

1. Poor same-store sales performance over the past two years indicates it’s having trouble bringing new shoppers into its brick-and-mortar locations
2. Gross margin of 10.6% is below its competitors, leaving less money for marketing and promotions
3. 17× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings

At $77.92 per share, CarMax trades at 22x forward price-to-earnings. Dive into our free research report to see why there are better opportunities than KMX.

DaVita (DVA)

Market Cap: $12.24 billion

With over 2,600 dialysis centers across the United States and a presence in 13 countries, DaVita (NYSE:DVA) operates a network of dialysis centers providing treatment and care for patients with chronic kidney disease and end-stage kidney disease.

Why Are We Cautious About DVA?

1. Sizable revenue base leads to growth challenges as its 2.4% annual revenue increases over the last five years fell short of other healthcare companies
2. Flat treatments over the past two years suggest it might have to lower prices to accelerate growth
3. Projected sales growth of 5% for the next 12 months suggests sluggish demand

DaVita is trading at $153 per share, or 13.6x forward price-to-earnings. To fully understand why you should be careful with DVA, check out our full research report (it’s free).

Illumina (ILMN)

Market Cap: $12.57 billion

Pioneering the ability to read the human genome at unprecedented speed and affordability, Illumina (NASDAQ:ILMN) develops and sells advanced DNA sequencing and microarray technologies that allow researchers and clinicians to analyze genetic variations and functions.

Why Should You Sell ILMN?

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. Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 8.8% annually
3. Free cash flow margin shrank by 11.4 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Illumina’s stock price of $79.34 implies a valuation ratio of 17.9x forward price-to-earnings. Check out our free in-depth research report to learn more about why ILMN doesn’t pass our bar.

Stocks We Like More

The Trump trade may have passed, but rates are still dropping and inflation is still cooling. Opportunities are ripe for those ready to act - and we’re here to help you pick them.

Get started by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.