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 are three mid-cap stocks to avoid and some other investments you should consider instead.

GoDaddy (GDDY)

Market Cap: $12.44 billion

Known for its memorable Super Bowl commercials that put it on the map, GoDaddy (NYSE: GDDY) is a domain registrar and web services provider that helps entrepreneurs establish an online presence through domain registration, website building, hosting, and e-commerce tools.

Why Do We Think GDDY Will Underperform?

1. Products, pricing, or go-to-market strategy may need some adjustments as its 6.2% average billings growth over the last year was weak
2. Estimated sales growth of 5.3% for the next 12 months implies demand will slow from its two-year trend
3. High servicing costs result in a relatively inferior gross margin of 63.8% that must be offset through increased usage

At $99.75 per share, GoDaddy trades at 2.4x forward price-to-sales. Check out our free in-depth research report to learn more about why GDDY doesn’t pass our bar.

Packaging Corporation of America (PKG)

Market Cap: $22.1 billion

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

Why Is PKG Not Exciting?

1. Underwhelming unit sales over the past two years suggest it might have to lower prices to accelerate growth
2. Earnings per share have dipped by 1.8% annually over the past two years, which is concerning because stock prices follow EPS over the long term
3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

Packaging Corporation of America is trading at $249.69 per share, or 21.6x forward P/E. Read our free research report to see why you should think twice about including PKG in your portfolio.

Align Technology (ALGN)

Market Cap: $11.29 billion

Pioneering an alternative to traditional metal braces with nearly invisible plastic aligners, Align Technology (NASDAQ: ALGN) designs and manufactures Invisalign clear aligners, iTero intraoral scanners, and dental CAD/CAM software for orthodontic and restorative treatments.

Why Are We Cautious About ALGN?

1. Muted 2.5% annual revenue growth over the last two years shows its demand lagged behind its healthcare peers
2. Earnings growth underperformed the sector average over the last five years as its EPS grew by just 1.4% annually
3. Eroding returns on capital suggest its historical profit centers are aging

Align Technology’s stock price of $160.62 implies a valuation ratio of 13.8x forward P/E. To fully understand why you should be careful with ALGN, check out our full research report (it’s free).

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