3 top mid-cap stocks that are grossly undervalued right now

While the market as a whole had a pretty good year in 2021 (the S&P500, geared towards large-cap stocks, rose 27%), the performance of small- and mid-cap stocks was mixed. Some tech stocks have suffered sharp setbacks after surging at the start of the pandemic, even as the companies themselves continue to grow at a healthy pace.

After a crazy year, magnite (NASDAQ: MGNI), red fin (NASDAQ: RDFN), and Crocodile (NASDAQ:CROX) seem well undervalued right now based on their future potential. Here’s why these three mid-cap stocks are worth a closer look.

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1. Magnite: constant expansion with streaming TV

Magnite stock hasn’t been able to pause since rapidly doubling in value in the first two months of 2021. The stock price is down 77% from its all-time high recorded a year ago. nearly a year, valuing the software company at just $2.4. billion (as measured by enterprise value).

Looking back, Magnite was way too expensive 12 months ago. An excess of optimism had set in, spurred on by the company’s fast-growing platform, which helps video publishers sell ad slots. Connected TV (CTV) is taking over the home entertainment space as a myriad of new streaming services attract subscribers and traditional video shifts to an internet-streamed format. Magnite is the largest independent CTV software company. Hundreds of publishers use it to automate ad sales and maximize the value of their content.

But a company that expects to grow sales by an average of 25% per year in each of the next five years didn’t deserve to trade at a 12-month sales multiple of more than 20 (this is where Magnite was in early 2021). Now the stock is trading for just 4.5x 12-month sales, which seems incredibly cheap considering it’s such a profitable business. and growing business. Adjusted EBITDA profit margin was 35% in Q3 2021, and management expects it to be above 40% in future years.

Of course, the digital adware space is very competitive and Magnite has a lot of debt due to a few acquisitions ($719 million at the end of September 2021). But Magnite is generating plenty of cash to pay off its debt and is poised to continue to grow with the CTV industry in the years to come. Even management thinks its stock is a pretty good deal right now. He announced a $50 million share buyback program in December. I also like this CTV ad stock at these levels.

2. Redfin: A Technology-Based Full-Service Brokerage Company

The real estate brokerage business is cyclical and shares of Redfin suffered on fears of an overly hot residential housing market. The supply of homes available for sale has been low during the pandemic as Americans move in droves, and now that interest rates are expected to rise this year, there’s another reason to worry. Redfin stock has fallen nearly 60% in the past year, giving it an enterprise value of $4.2 billion.

Redfin will not be an appropriate action for all investors. The company is spending a lot to maximize sales growth right now and has generated negative free cash flow of $429 million over the past 12 months. But at just 2.2 times 12-month sales, a substantial amount of negativity has been embedded at this point.

After all, Redfin continues to steadily gain market share (1.16% of the value of existing homes in the United States in the third quarter of 2021, compared to 1.04% the previous year). It’s still expanding its services into new cities, acquired an online rental listing site last spring, and recently announced it was buying Bay Equity Home Loans to expand its mortgage services. Redfin has a full-service technology stack to help home buyers and sellers, and it has many potential avenues for growth ahead, regardless of where the real estate market moves next.

Management had said it expected year-over-year revenue growth of up to 148% in the fourth quarter of 2021, a blistering pace that is unlikely to continue into the new year. Nonetheless, with stocks depressed in value and Redfin continuing to rise in the housing market, now seems like a good time to nibble on this tech stock.

3. Crocs: Comfort and utility for victory

Crocs sales have soared during the pandemic, bucking the overall downward trend elsewhere in the apparel and apparel department. In 2021 alone, the company said it expects record full-year sales to exceed $2.3 billion, a 67% growth from 2020. Despite this, the stock price has fallen by a third in value in recent months. Crocs has an enterprise value of $7.2 billion.

Comfort and utility are in vogue as the pandemic reshapes consumer behavior. Following this and a push into new markets in Asia, Crocs believes it will remain a fast-growing footwear company for years to come. Management’s goal is to reach $5 billion in annual sales by 2026. 2022 is on track to achieve that milestone. Excluding the recent acquisition of small casual shoe brand Hey Dude, Crocs expects sales growth to exceed 20%, while maintaining an adjusted EBIT margin of around 28%. This makes this quirky shoe company one of the most profitable in the industry.

When Crocs announced the acquisition of Hey Dude last month for $2.5 billion, I was initially skeptical. However, it was revealed that the small, casual brand is expected to generate up to $750 million in sales in 2022, with an adjusted operating margin of 26%. Plugging into Crocs’ existing distribution channels, this could be a new growth lever for Crocs in the years to come.

Given Crocs’ outlook for 2022, shares are currently trading for just 7x adjusted operating profit (assuming Crocs generates that 28% margin and Hey Dude 26%). Of course, Crocs will have to prove it’s the real deal and deliver the goods. But if so, it looks like an overlooked cheap shoe stock right now.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a high-end consulting service Motley Fool. We are heterogeneous! Challenging an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and wealthier.

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