3 Mid-Cap Stocks in Hot Water

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.

This is precisely where StockStory comes in - we do the heavy lifting to identify companies with solid fundamentals so you can invest with confidence. That said, here are three mid-cap stocks to avoid and some other investments you should consider instead.

Somnigroup (SGI)

Market Cap: $12.88 billion

Established through the merger of Tempur-Pedic and Sealy in 2012, Somnigroup (NYSE:SGI) is a bedding manufacturer known for its innovative memory foam mattresses and sleep products

Why Are We Cautious About SGI?

1. Flat sales over the last two years suggest it must innovate and find new ways to grow

2. Free cash flow margin is forecasted to shrink by 4.6 percentage points in the coming year, suggesting the company will consume more capital to keep up with its competitors

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Somnigroup is trading at $61.86 per share, or 10.7x forward EV-to-EBITDA. Check out our free in-depth research report to learn more about why SGI doesn’t pass our bar .

Packaging Corporation of America (PKG)

Market Cap: $18.04 billion

Founded in 1959, Packaging Corporation of America (NYSE: PKG) produces containerboard and corrugated packaging products as well as displays and package protection.

Why Should You Dump PKG?

1. Disappointing unit sales over the past two years show it’s struggled to increase its sales volumes and had to rely on price increases

2. Earnings per share have contracted by 9.9% annually over the last two years, a headwind for returns as stock prices often echo long-term EPS performance

3. Free cash flow margin shrank by 3 percentage points over the last five years, suggesting the company is consuming more capital to stay competitive

Packaging Corporation of America’s stock price of $202.27 implies a valuation ratio of 17.7x forward price-to-earnings. Read our free research report to see why you should think twice about including PKG in your portfolio, it’s free .

NetApp (NTAP)

Market Cap: $19.03 billion

Founded in 1992 when the digital storage industry was still in its infancy, NetApp (NASDAQ:NTAP) provides data storage and management solutions that help organizations store, protect, and optimize their data across on-premises data centers and public clouds.