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. Keeping that in mind, here are three mid-cap stocks to avoid and some other investments you should consider instead.
DocuSign (DOCU)
Market Cap: $9.12 billion
Creating the digital equivalent of "sign on the dotted line" for over a billion users worldwide, DocuSign (NASDAQ:DOCU) provides an agreement management platform that enables businesses to electronically prepare, sign, and manage documents and contracts.
Why Does DOCU Fall Short?
- Underwhelming ARR growth of 8.4% over the last year suggests the company faced challenges in acquiring and retaining long-term customers
- Projected sales growth of 6.7% for the next 12 months suggests sluggish demand
- Operating profits increased over the last year as the company gained some leverage on its fixed costs and became more efficient
At $45.42 per share, DocuSign trades at 2.9x forward price-to-sales. Read our free research report to see why you should think twice about including DOCU in your portfolio.
GameStop (GME)
Market Cap: $11.06 billion
Drawing gaming fans with demo units set up with the latest releases, GameStop (NYSE:GME) sells new and used video games, consoles, and accessories, as well as pop culture merchandise.
Why Is GME Risky?
- GameStop’s brick-and-mortar engine keeps stalling as gamers migrate to digital downloads, and management is closing more outlets after shuttering hundreds of stores last year
- The share price remains an unpredictable meme-stock roller-coaster, and the purchase of thousands of Bitcoins have fueled huge swings
- On the bright side, the company has a large cash pile that gives CEO Ryan Cohen room to buy more Bitcoin or fund its collectibles and trading-card push
GameStop’s stock price of $23.75 implies a valuation ratio of 29.4x forward P/E. If you’re considering GME for your portfolio, see our FREE research report to learn more.
Hewlett Packard Enterprise (HPE)
Market Cap: $30.31 billion
Born from the 2015 split of the iconic Silicon Valley pioneer Hewlett-Packard, Hewlett Packard Enterprise (NYSE:HPE) provides edge-to-cloud technology solutions that help businesses capture, analyze, and act upon their data across hybrid IT environments.
Why Are We Hesitant About HPE?
- Annual sales growth of 4.9% over the last five years lagged behind its business services peers as its large revenue base made it difficult to generate incremental demand
- Incremental sales over the last two years were much less profitable as its earnings per share fell by 5.5% annually while its revenue grew
- 10.5 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
Hewlett Packard Enterprise is trading at $22.54 per share, or 9.8x forward P/E. Check out our free in-depth research report to learn more about why HPE doesn’t pass our bar.
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