3 Medium-Sized Companies We Choose to Avoid

Mid-Cap Stocks: Opportunities and Challenges

Mid-cap companies often have the potential to grow into giants worth $100 billion, thanks to their proven business strategies and vast market opportunities. However, their growth prospects also attract fierce competition, ranging from industry leaders with deep pockets to agile newcomers eager to disrupt the status quo.

How StockStory Helps You Invest Wisely

At StockStory, our goal is to help you maximize gains and minimize losses by identifying the strongest and weakest performers. With that in mind, we’ve highlighted three mid-cap stocks you may want to avoid, along with some alternative options worth considering.

Ralph Lauren (RL)

Market Cap: $22.65 billion

Ralph Lauren (NYSE:RL), which began as a necktie business, has evolved into a renowned American fashion label recognized for its timeless and elegant designs.

Reasons to Avoid RL

• Revenue growth, adjusted for currency fluctuations, has been underwhelming over the past two years, indicating weak demand.
• The company’s limited operating margin makes it difficult to quickly adapt to unexpected market shifts.
• With a free cash flow margin of just 11.9% over the last two years, RL has little flexibility to invest in growth or return capital to shareholders through buybacks or dividends.

Currently, Ralph Lauren shares are priced at $374.47, with a forward P/E ratio of 20.9.

US Foods (USFD)

Market Cap: $21.29 billion

US Foods (NYSE:USFD) operates a fleet of more than 6,500 trucks, supplying fresh and frozen food products to around 250,000 restaurants, healthcare providers, hotels, and schools throughout the United States.

Why We’re Not Bullish on USFD

• While product demand has been strong, with unit sales growing 2.8% annually over the past two years, other concerns remain.
• An operating margin of just 3% restricts the company’s ability to invest in operational improvements or respond effectively to new competitors.
• With a free cash flow margin of only 2.3% over the past two years, US Foods has limited resources for growth initiatives, share repurchases, or dividend payments.

US Foods trades at $96.55 per share, equating to a forward P/E of 20.1.

PulteGroup (PHM)

Market Cap: $27.07 billion

PulteGroup (NYSE:PHM) stands among the largest homebuilders in the U.S., having delivered over 850,000 homes since 1950. The company builds single-family homes, townhomes, and condos for a wide range of buyers in 46 markets across 25 states.

Concerns About PHM

• The company’s backlog has declined by an average of 18.9% over the past two years, suggesting it’s losing orders amid rising competition.
• Earnings per share have decreased by 1.4% annually over the last two years, which could negatively impact long-term stock performance.
• Returns on capital are shrinking, indicating that previous profit sources may be drying up.

PulteGroup’s shares are valued at $140.31, with a forward P/E of 13.7.

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