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. Keeping that in mind, here is one mid-cap stock with massive growth potential and two best left ignored.
Two Mid-Cap Stocks to Sell:
Lennar (LEN)
Market Cap: $22.66 billion
One of the largest homebuilders in America, Lennar (NYSE: LEN) is known for constructing affordable, move-up, and retirement homes across a range of markets and communities.
Why Do We Pass on LEN?
- Sales pipeline suggests its future revenue growth won’t meet our standards as its backlog averaged 11.4% declines over the past two years
- 7.5 percentage point decline in its free cash flow margin over the last five years reflects the company’s increased investments to defend its market position
- Eroding returns on capital suggest its historical profit centers are aging
At $92.25 per share, Lennar trades at 15.1x forward P/E. To fully understand why you should be careful with LEN, check out our full research report (it’s free).
KeyCorp (KEY)
Market Cap: $23.88 billion
Tracing its roots back to 1849 during the California Gold Rush era, KeyCorp (NYSE: KEY) operates KeyBank, a full-service regional bank providing retail and commercial banking, wealth management, and investment services across 15 states.
Why Does KEY Fall Short?
- Muted 3.4% annual net interest income growth over the last five years shows its demand lagged behind its banking peers
- Weak unit economics are reflected in its net interest margin of 2.6%, one of the worst among bank companies
- Performance over the past five years shows its incremental sales were much less profitable, as its earnings per share fell by 1.5% annually
KeyCorp is trading at $22.09 per share, or 1.3x forward P/B. Read our free research report to see why you should think twice about including KEY in your portfolio.
One Mid-Cap Stock to Watch:
Advanced Drainage (WMS)
Market Cap: $11.64 billion
Originally started as a farm water drainage company, Advanced Drainage Systems (NYSE: WMS) provides clean water management solutions to communities across America.
Why Are We Fans of WMS?
- Excellent operating margin of 21.6% highlights the efficiency of its business model, and its operating leverage amplified its profits over the last five years
- Free cash flow margin increased by 16.3 percentage points over the last five years, giving the company more capital to invest or return to shareholders
- Industry-leading 22.8% return on capital demonstrates management’s skill in finding high-return investments, and its rising returns show it’s making even more lucrative bets
Advanced Drainage’s stock price of $149.40 implies a valuation ratio of 23x forward P/E. Is now the time to initiate a position? See for yourself in our full research report, it’s free.
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