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.
Luckily for you, our mission at StockStory is to help you make money and avoid losses by sorting the winners from the losers. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.
Nordson (NDSN)
Market Cap: $17.51 billion
Founded in 1954, Nordson Corporation (NASDAQ:NDSN) manufactures dispensing equipment and industrial adhesives, sealants and coatings.
Why Are We Cautious About NDSN?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Demand will likely be soft over the next 12 months as Wall Street’s estimates imply tepid growth of 6.4%
- Eroding returns on capital suggest its historical profit centers are aging
Nordson is trading at $314.45 per share, or 24.6x forward P/E. Dive into our free research report to see why there are better opportunities than NDSN.
STERIS (STE)
Market Cap: $20.18 billion
With a mission critical role in preventing healthcare-associated infections, STERIS (NYSE:STE) provides infection prevention products, sterilization services, and medical equipment that help healthcare facilities and life science companies maintain sterile environments.
Why Does STE Fall Short?
- Sales trends were unexciting over the last two years as its 7.4% annual growth was below the typical healthcare company
- Adjusted operating margin failed to increase over the last five years, indicating the company couldn’t optimize its expenses
- Low returns on capital reflect management’s struggle to allocate funds effectively
At $206.95 per share, STERIS trades at 17.9x forward P/E. To fully understand why you should be careful with STE, check out our full research report (it’s free).
Zimmer Biomet (ZBH)
Market Cap: $17.99 billion
With a history dating back to 1927 and a presence in over 100 countries worldwide, Zimmer Biomet (NYSE:ZBH) designs and manufactures orthopedic products including knee and hip replacements, surgical tools, and robotic technologies for joint reconstruction and spine surgeries.
Why Is ZBH Not Exciting?
- 4.4% annual revenue growth over the last five years was slower than its healthcare peers
- Incremental sales over the last five years were less profitable as its 2.4% annual earnings per share growth lagged its revenue gains
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Zimmer Biomet’s stock price of $94.30 implies a valuation ratio of 10.9x forward P/E. Read our free research report to see why you should think twice about including ZBH in your portfolio.
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