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. That said, here are three mid-cap stocks to swipe left on and some alternatives you should look into instead.
AECOM (ACM)
Market Cap: $11.62 billion
Founded in 1990 when a group of engineers from five companies decided to merge, AECOM (NYSE: ACM) provides various infrastructure consulting services.
Why Does ACM Give Us Pause?
- Backlog has dropped by 4% on average over the past two years, suggesting it’s losing orders as competition picks up
- Operating margin of 4.8% falls short of the industry average, and the smaller profit dollars make it harder to react to unexpected market developments
- Low free cash flow margin of 4.4% for the last five years gives it little breathing room, constraining its ability to self-fund growth or return capital to shareholders
AECOM’s stock price of $89.79 implies a valuation ratio of 14.9x forward P/E. If you’re considering ACM for your portfolio, see our FREE research report to learn more.
TopBuild (BLD)
Market Cap: $10.28 billion
Established in 2015 following a spinoff from Masco Corporation, TopBuild (NYSE: BLD) is a distributor and installer of insulation and other building products.
Why Are We Cautious About BLD?
- Sales trends were unexciting over the last two years as its 2% annual growth was below the typical industrials company
- High input costs result in an inferior gross margin of 29.8% that must be offset through higher volumes
- Earnings per share were flat over the last two years and fell short of the peer group average
At $367.19 per share, TopBuild trades at 19.9x forward P/E. Read our free research report to see why you should think twice about including BLD in your portfolio.
IQVIA (IQV)
Market Cap: $28.27 billion
Created from the 2016 merger of Quintiles (a clinical research organization) and IMS Health (a healthcare data specialist), IQVIA (NYSE: IQV) provides clinical research services, data analytics, and technology solutions to help pharmaceutical companies develop and market medications more effectively.
Why Is IQV Not Exciting?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 2.8% for the last two years
- Constant currency revenue growth has disappointed over the past two years and shows demand was soft
- Free cash flow margin dropped by 3.6 percentage points over the last five years, implying the company became more capital intensive as competition picked up
IQVIA is trading at $171.78 per share, or 13.3x forward P/E. Check out our free in-depth research report to learn more about why IQV doesn’t pass our bar.
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