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.
Dayforce (DAY)
Market Cap: $10.97 billion
Rebranded from Ceridian in January 2024 to highlight its flagship product, Dayforce (NYSE: DAY) provides cloud-based software that helps organizations manage their entire employee lifecycle, including HR, payroll, workforce management, benefits, and talent development.
Why Do We Think Twice About DAY?
- 17.8% annual revenue growth over the last three years was slower than its software peers
- Gross margin of 50.9% reflects its high servicing costs
- Free cash flow margin is forecasted to shrink by 1.3 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors
At $69.54 per share, Dayforce trades at 5.4x forward price-to-sales. Dive into our free research report to see why there are better opportunities than DAY.
C.H. Robinson Worldwide (CHRW)
Market Cap: $15.21 billion
Engaging in contracts with tens of thousands of transportation companies, C.H. Robinson (NASDAQ: CHRW) offers freight transportation and logistics services.
Why Do We Steer Clear of CHRW?
- Products and services are facing significant end-market challenges during this cycle as sales have declined by 8% annually over the last two years
- High input costs result in an inferior gross margin of 7.3% that must be offset through higher volumes
- Eroding returns on capital suggest its historical profit centers are aging
C.H. Robinson Worldwide is trading at $129.96 per share, or 26.1x forward P/E. Check out our free in-depth research report to learn more about why CHRW doesn’t pass our bar.
Penumbra (PEN)
Market Cap: $10.52 billion
Founded in 2004 to address challenging medical conditions with significant unmet needs, Penumbra (NYSE: PEN) develops and manufactures innovative medical devices for treating vascular diseases and providing immersive healthcare rehabilitation solutions.
Why Are We Cautious About PEN?
- Revenue base of $1.28 billion puts it at a disadvantage compared to larger competitors exhibiting economies of scale
- Lacking free cash flow generation means it has few chances to reinvest for growth, repurchase shares, or distribute capital
- Below-average returns on capital indicate management struggled to find compelling investment opportunities
Penumbra’s stock price of $269.71 implies a valuation ratio of 62.6x forward P/E. To fully understand why you should be careful with PEN, check out our full research report (it’s free).
High-Quality Stocks for All Market Conditions
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