Mid-cap stocks have the best odds of scaling into $100 billion corporations thanks to their tested business models and large addressable markets. But the many opportunities in front of them attract significant competition, spanning from industry behemoths with seemingly infinite resources to small, nimble players with chips on their shoulders.
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 is one mid-cap stock with a long growth runway and two best left ignored.
Two Mid-Cap Stocks to Sell:
Dollar General (DG)
Market Cap: $26.24 billion
Appealing to the budget-conscious consumer, Dollar General (NYSE: DG) is a discount retailer that sells a wide range of household essentials, groceries, apparel/beauty products, and seasonal merchandise.
Why Are We Cautious About DG?
- The company has faced growth challenges as its 4% annual revenue increases over the last three years fell short of other consumer retail companies
- Gross margin of 30.7% is below its competitors, leaving less money for marketing and promotions
- ROIC of 8.8% reflects management’s challenges in identifying attractive investment opportunities, and its decreasing returns suggest its historical profit centers are aging
Dollar General’s stock price of $118.70 implies a valuation ratio of 14.9x forward P/E. Dive into our free research report to see why there are better opportunities than DG.
Elanco (ELAN)
Market Cap: $11.06 billion
Originally established as a division of pharmaceutical giant Eli Lilly before becoming independent in 2018, Elanco Animal Health (NYSE: ELAN) develops and sells medications, vaccines, and other health products for pets and farm animals across more than 90 countries.
Why Are We Hesitant About ELAN?
- Sales trends were unexciting over the last five years as its 2% annual growth was below the typical healthcare company
- Day-to-day expenses have swelled relative to revenue over the last five years as its adjusted operating margin fell by 3.5 percentage points
- Push for growth has led to negative returns on capital, signaling value destruction
Elanco is trading at $22.14 per share, or 18.1x forward P/E. Check out our free in-depth research report to learn more about why ELAN doesn’t pass our bar.
One Mid-Cap Stock to Watch:
Zebra (ZBRA)
Market Cap: $17.78 billion
Taking its name from the black and white stripes of barcodes, Zebra Technologies (NASDAQ: ZBRA) provides barcode scanners, mobile computers, RFID systems, and other data capture technologies that help businesses track assets and optimize operations.
Why Are We Positive on ZBRA?
- Core business can prosper without any help from acquisitions as its organic revenue growth averaged 13.8% over the past two years
- Performance over the past two years was turbocharged by share buybacks, which enabled its earnings per share to grow faster than its revenue
- Free cash flow margin jumped by 4.8 percentage points over the last five years, giving the company more resources to pursue growth initiatives, repurchase shares, or pay dividends
At $372.48 per share, Zebra trades at 18x forward P/E. Is now the right time to buy? Find out in our full research report, it’s free.
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