Large-cap stocks usually command their industries because they have the scale to drive market trends. The flip side though is that their sheer size can limit growth as expanding further becomes an increasingly challenging task.
This dynamic can trouble even the most skilled investors, but luckily for you, we started StockStory to help you navigate these trade-offs and uncover exceptional companies that break the mold. That said, here are three large-cap stocks whose existing offerings may be tapped out and some other investments you should look into instead.
Workday (WDAY)
Market Cap: $31.92 billion
Born from the vision of PeopleSoft founders after Oracle's hostile takeover of their previous company, Workday (NASDAQ: WDAY) provides cloud-based software for financial management, human resources, planning, and analytics to help organizations manage their business operations.
Why Are We Wary of WDAY?
- Customers were hesitant to make long-term commitments to its software as its 12.5% average ARR growth over the last year was sluggish
- Estimated sales growth of 11.5% for the next 12 months implies demand will slow from its two-year trend
- Operating profits and efficiency rose over the last year as it benefited from some fixed cost leverage
Workday’s stock price of $123.76 implies a valuation ratio of 3.2x forward price-to-sales. Dive into our free research report to see why there are better opportunities than WDAY.
Microchip Technology (MCHP)
Market Cap: $33.55 billion
Spun out from General Instrument in 1987, Microchip Technology (NASDAQ: MCHP) is a leading provider of microcontrollers and integrated circuits used mainly in the automotive world, especially in electric vehicles and their charging devices.
Why Is MCHP Risky?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 3.8% annually over the last five years
- Earnings per share decreased by more than its revenue over the last five years, showing each sale was less profitable
- Free cash flow margin dropped by 15.9 percentage points over the last five years, implying the company became more capital intensive as competition picked up
Microchip Technology is trading at $61.74 per share, or 26.4x forward P/E. Check out our free in-depth research report to learn more about why MCHP doesn’t pass our bar.
BD (BDX)
Market Cap: $44 billion
With a history dating back to 1897 and a presence in virtually every hospital around the globe, Becton Dickinson (NYSE: BDX) develops and manufactures medical supplies, devices, laboratory equipment and diagnostic products used by healthcare institutions and professionals worldwide.
Why Is BDX 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 4.1% for the last five years
- Sales are projected to tank by 12% over the next 12 months as demand evaporates
- ROIC of 4.3% reflects management’s challenges in identifying attractive investment opportunities
At $158.22 per share, BD trades at 12.2x forward P/E. If you’re considering BDX for your portfolio, see our FREE research report to learn more.
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