3 Mid-Cap Stocks with Mounting Challenges

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.

Microchip Technology (MCHP)

Market Cap: $24.73 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 Is MCHP Risky?

1. Products and services are facing significant end-market challenges during this cycle as sales have declined by 2.1% annually over the last five years
2. Forecasted revenue decline of 13.9% for the upcoming 12 months implies demand will fall even further
3. 13.4 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

Microchip Technology’s stock price of $46.70 implies a valuation ratio of 24.8x forward P/E. Check out our free in-depth research report to learn more about why MCHP doesn’t pass our bar.

Warner Music Group (WMG)

Market Cap: $15.64 billion

Launching the careers of legendary artists like Frank Sinatra, Warner Music Group (NASDAQ:WMG) is a music company managing a diverse portfolio of artists, recordings, and music publishing services worldwide.

Why Do We Think Twice About WMG?

1. 4.6% annual revenue growth over the last two years was slower than its consumer discretionary peers
2. Projected sales growth of 3.6% for the next 12 months suggests sluggish demand
3. ROIC of 10.1% reflects management’s challenges in identifying attractive investment opportunities

At $30.66 per share, Warner Music Group trades at 22x forward P/E. To fully understand why you should be careful with WMG, check out our full research report (it’s free).

Rocket Lab (RKLB)

Market Cap: $10.03 billion

Becoming the first private company in the Southern Hemisphere to reach space, Rocket Lab (NASDAQ:RKLB) offers rockets designed for launching small satellites.

Why Does RKLB Worry Us?

1. Issuance of new shares over the last two years caused its earnings per share to fall by 31.2% annually while its revenue grew
2. Cash-burning history makes us doubt the long-term viability of its business model
3. Unfavorable liquidity position could lead to additional equity financing that dilutes shareholders

Rocket Lab is trading at $21.93 per share, or 19.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than RKLB.

Stocks We Like More

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