3 Mid-Cap Stocks That Fall Short
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.
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.
BJ's (BJ)
Market Cap: $11.79 billion
Appealing to the budget-conscious individual shopping for a household, BJ’s Wholesale Club (NYSE:BJ) is a membership-only retail chain that sells groceries, appliances, electronics, and household items, often in bulk quantities.
Why Is BJ 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
- Commoditized inventory, bad unit economics, and high competition are reflected in its low gross margin of 18.5%
- Subpar operating margin of 3.9% constrains its ability to invest in process improvements or effectively respond to new competitive threats
BJ’s stock price of $90.27 implies a valuation ratio of 20x forward P/E. To fully understand why you should be careful with BJ, check out our full research report (it’s free for active Edge members).
MGM Resorts (MGM)
Market Cap: $10.05 billion
Operating several properties on the Las Vegas Strip, MGM Resorts (NYSE:MGM) is a global hospitality and entertainment company known for its resorts and casinos.
Why Do We Avoid MGM?
- Sizable revenue base leads to growth challenges as its 6% annual revenue increases over the last two years fell short of other consumer discretionary companies
- Shrinking returns on capital from an already weak position reveal that neither previous nor ongoing investments are yielding the desired results
- 13× net-debt-to-EBITDA ratio makes lenders less willing to extend additional capital, potentially necessitating dilutive equity offerings
MGM Resorts is trading at $36.57 per share, or 16.8x forward P/E. Read our free research report to see why you should think twice about including MGM in your portfolio.
Packaging Corporation of America (PKG)
Market Cap: $18.61 billion
Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.
Why Are We Cautious About PKG?
- Annual revenue growth of 5.7% over the last five years was below our standards for the industrials sector
- Gross margin of 22.8% is below its competitors, leaving less money to invest in areas like marketing and R&D
- Waning returns on capital imply its previous profit engines are losing steam
At $203.49 per share, Packaging Corporation of America trades at 19.3x forward P/E. If you’re considering PKG for your portfolio, see our FREE research report to learn more.
Stocks We Like More
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