Mid-cap stocks often strike the right balance between having proven business models and market opportunities that can support $100 billion corporations. However, they face intense competition from scaled industry giants and can be disrupted by new innovative players vying for a slice of the pie.
These dynamics can rattle even the most seasoned professionals, which is why we started StockStory - to help you separate the good companies from the bad. That said, here are three mid-cap stocks to swipe left on and some alternatives you should look into instead.
The New York Times (NYT)
Market Cap: $11.65 billion
Founded in 1851, The New York Times (NYSE: NYT) is an American media organization known for its influential newspaper and expansive digital journalism platforms.
Why Do We Think NYT Will Underperform?
- Demand for its offerings was relatively low as its number of subscribers has underwhelmed
- Subpar operating margin of 14.2% constrains its ability to invest in process improvements or effectively respond to new competitive threats
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
The New York Times is trading at $71.66 per share, or 27.3x forward P/E. To fully understand why you should be careful with NYT, check out our full research report (it’s free).
Five Below (FIVE)
Market Cap: $10.89 billion
Often facilitating a treasure hunt shopping experience, Five Below (NASDAQ: FIVE) is an American discount retailer that sells a variety of products from mobile phone cases to candy to sports equipment for largely $5 or less.
Why Does FIVE Fall Short?
- Subscale operations are evident in its revenue base of $4.43 billion, meaning it has fewer distribution channels than its larger rivals
- Gross margin of 35.4% is an output of its commoditized inventory
- Underwhelming 10.4% return on capital reflects management’s difficulties in finding profitable growth opportunities, and its decreasing returns suggest its historical profit centers are aging
At $197.41 per share, Five Below trades at 31.4x forward P/E. If you’re considering FIVE for your portfolio, see our FREE research report to learn more.
Builders FirstSource (BLDR)
Market Cap: $13.98 billion
Headquartered in Irving, TX, Builders FirstSource (NYSE: BLDR) is a construction materials manufacturer that offers a variety of lumber and lumber-related building products.
Why Does BLDR Give Us Pause?
- Annual sales declines of 4.9% for the past two years show its products and services struggled to connect with the market during this cycle
- Falling earnings per share over the last two years has some investors worried as stock prices ultimately follow EPS over the long term
- Diminishing returns on capital suggest its earlier profit pools are drying up
Builders FirstSource’s stock price of $126.43 implies a valuation ratio of 20.5x forward P/E. Check out our free in-depth research report to learn more about why BLDR doesn’t pass our bar.
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