Many investors pay attention to mid-cap stocks because they have established business models and expansive market opportunities. However, their paths to becoming $100 billion corporations are ripe with competition, ranging from giants with vast resources to agile upstarts eager to disrupt the status quo.
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 is one mid-cap stock with massive growth potential and two that could be down big.
Two Mid-Cap Stocks to Sell:
Watsco (WSO)
Market Cap: $18.95 billion
Originally a manufacturing company, Watsco (NYSE:WSO) today only distributes air conditioning, heating, and refrigeration equipment, as well as related parts and supplies.
Why Is WSO Not Exciting?
- Lagging same-store sales over the past two years suggest it might have to change its pricing and marketing strategy to stimulate demand
- High input costs result in an inferior gross margin of 26.7% that must be offset through higher volumes
- Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 4.8% annually
Watsco’s stock price of $501.67 implies a valuation ratio of 34.3x forward price-to-earnings. If you’re considering WSO for your portfolio, see our FREE research report to learn more.
Waters Corporation (WAT)
Market Cap: $22.51 billion
Founded in 1958, Waters Corporation (NYSE:WAT) develops and manufactures high-performance liquid chromatography (HPLC), mass spectrometry (MS), and thermal analysis systems for laboratories.
Why Are We Wary of WAT?
- Absence of organic revenue growth over the past two years suggests it may have to lean into acquisitions to drive its expansion
- Capital intensity has ramped up over the last five years as its free cash flow margin decreased by 5.2 percentage points
- Diminishing returns on capital suggest its earlier profit pools are drying up
At $378.01 per share, Waters Corporation trades at 29.5x forward price-to-earnings. Read our free research report to see why you should think twice about including WAT in your portfolio.
One Mid-Cap Stock to Buy:
Pure Storage (PSTG)
Market Cap: $17.03 billion
Founded in 2009 as a pioneer in enterprise all-flash storage technology, Pure Storage (NYSE:PSTG) provides all-flash data storage hardware and software solutions that help organizations manage and process their data across hybrid and cloud environments.
Why Do We Love PSTG?
- Ability to secure long-term commitments with customers is evident in its 24.8% average ARR growth over the past two years
- Incremental sales over the last five years have been highly profitable as its earnings per share increased by 46.4% annually, topping its revenue gains
- PSTG is a free cash flow machine with the flexibility to invest in growth initiatives or return capital to shareholders, and its rising cash conversion increases its margin of safety
Pure Storage is trading at $51.60 per share, or 29.6x forward price-to-earnings. Is now the right time to buy? Find out in our full research report, it’s free.
Stocks We Like Even More
The elections are now behind us. With rates dropping and inflation cooling, many analysts expect a breakout market - and we’re zeroing in on the stocks that could benefit immensely.
Take advantage of the rebound by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.
Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.