Mid-cap stocks have the best odds of scaling into $100 billion corporations thanks to their tested business models and large addressable markets. But the many opportunities in front of them attract significant competition, spanning from industry behemoths with seemingly infinite resources to small, nimble players with chips on their shoulders.
This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. Keeping that in mind, here are three mid-cap stocks to pass on and some alternatives you should look into instead.
XPO (XPO)
Market Cap: $22.07 billion
Owning a mobile game simulating freight operations for the Tour de France, XPO (NYSE:XPO) is a transportation company specializing in expedited shipping services.
Why Is XPO Not Exciting?
- Muted 3.4% annual revenue growth over the last two years shows its demand lagged behind its industrials peers
- Earnings per share fell by 2.7% annually over the last five years while its revenue grew, partly because it diluted shareholders
- Low free cash flow margin of 1.6% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
XPO’s stock price of $188.49 implies a valuation ratio of 31x forward P/E. Check out our free in-depth research report to learn more about why XPO doesn’t pass our bar.
Charles River Laboratories (CRL)
Market Cap: $16.46 billion
Named after the Massachusetts river where it was founded in 1947, Charles River Laboratories (NYSE:CRL) provides non-clinical drug development services, research models, and manufacturing support to pharmaceutical and biotechnology companies.
Why Are We Out on CRL?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Performance over the past five years shows its incremental sales were less profitable as its earnings per share were flat
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
Charles River Laboratories is trading at $344.74 per share, or 25.6x forward P/E. To fully understand why you should be careful with CRL, check out our full research report (it’s free).
Reinsurance Group of America (RGA)
Market Cap: $17.58 billion
Operating behind the scenes of the insurance industry since 1973, Reinsurance Group of America (NYSE:RGA) provides life and health reinsurance services to insurance companies, helping them manage risk and meet regulatory requirements.
Why Do We Pass on RGA?
- Scale presents growth limitations compared to smaller competitors, evidenced by its below-average 1.3% annualized growth in net premiums earned for the last two years
- Annual book value per share growth of 1.2% over the last five years lagged behind its insurance peers as its large balance sheet made it difficult to generate incremental capital growth
- Forecasted book value per share decline of 8.1% for the upcoming 12 months implies profitability will deteriorate significantly
At $269.31 per share, Reinsurance Group of America trades at 1.2x forward P/B. Dive into our free research report to see why there are better opportunities than RGA.
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