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. Keeping that in mind, here is one mid-cap stock with huge upside potential and two that may have trouble.
Two Mid-Cap Stocks to Sell:
CAVA (CAVA)
Market Cap: $11.2 billion
Starting from a single Washington, D.C. location, CAVA (NYSE: CAVA) operates a fast-casual restaurant chain offering customizable Mediterranean-inspired dishes.
Why Are We Hesitant About CAVA?
- Poor expense management has led to an operating margin of 4.6% that is below the industry average
- Earnings per share have contracted by 12.8% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance
- Negative returns on capital show that some of its growth strategies have backfired
CAVA is trading at $97.25 per share, or 185x forward P/E. If you’re considering CAVA for your portfolio, see our FREE research report to learn more.
Crown Holdings (CCK)
Market Cap: $11.48 billion
Formerly Crown Cork & Seal, Crown Holdings (NYSE: CCK) produces packaging products for consumer marketing companies, including food, beverage, household, and industrial products.
Why Do We Think Twice About CCK?
- Scale is a double-edged sword because it limits the company’s growth potential compared to its smaller competitors, as reflected in its below-average annual revenue increases of 1.3% for the last five years
- Projected sales growth of 3.6% for the next 12 months suggests sluggish demand
- Competitive supply chain dynamics and steep production costs are reflected in its low gross margin of 21.1%
Crown Holdings’s stock price of $103.49 implies a valuation ratio of 12.9x forward P/E. Check out our free in-depth research report to learn more about why CCK doesn’t pass our bar.
One Mid-Cap Stock to Watch:
Toast (TOST)
Market Cap: $16.89 billion
Born from the frustrations of three friends waiting too long for their restaurant bill, Toast (NYSE: TOST) provides a cloud-based digital technology platform with software, payment processing, and hardware solutions built specifically for restaurants.
Why Do We Like TOST?
- ARR trends over the last year show it’s maintaining a steady flow of long-term contracts that contribute positively to its revenue predictability
- Sales outlook for the upcoming 12 months implies the business will stay on its desirable two-year growth trajectory
At $28.94 per share, Toast trades at 2.4x forward price-to-sales. Is now the time to initiate a position? Find out in our full research report, it’s free.
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