Why This Star Mid-Cap Fund Likes Ralph Lauren and Planet Fitness — Barrons.com

Dow Jones Newswires

By Debbie Carlson

Mid-cap companies are often overlooked by investors, who either stick with large-cap companies or look to small-cap names if they want to diversify. But 2026 may be the year mid-caps come out of the shadows.

Several factors are coming together that could make this year an exciting time for the stock market's middle child, say Don Peters and Dante Pearson, managers of the $4.4 billion T. Rowe Price Diversified Mid Cap Growth fund.

Compared with large-cap companies, mid-caps generally need more money to grow, so as the Federal Reserve continues its easing cycle, midsize companies often receive an outsize benefit from lowered borrowing costs. The outlook for earnings growth is strong for 2026, and companies that are going public now are often listing as mid-caps — instead of small-caps — having stayed private for longer. Finally, mergers and acquisitions activity could increase because of an accommodating regulatory environment, further giving mid-caps a boost.

Unlike more-volatile small-cap companies still gaining their footing, or large-cap companies unlikely to experience rapid growth, the best mid-cap companies are transforming into higher-margin, higher-return-on-capital businesses. But only about 15 sell-side analysts on average cover mid-cap companies, so many good ones are growing unnoticed, the fund's managers say.

"That's one of the many benefits that we appreciate in mid-cap investing, " Pearson says.

Morningstar gives Mid Cap Growth five stars and a silver medal, which means the firm has a high conviction the fund will outperform its index and its peers over a full market cycle on a risk-adjusted basis. The no-load fund charges annual fees of 0.84%, which Morningstar calls below average.

The fund beats its peers across short- and long-term time frames. It has a 14% 10-year annualized return versus peers' return of 12.1%, putting it in the top 10% of mid-cap growth funds. Mid Cap Growth also beats the Russell Midcap Growth index's 10-year return of 13.3%, net of fees.

Peters has run the fund since its 2003 inception, and Pearson has worked with Peters since joining T. Rowe in 2017, first as an analyst; he was officially named associate portfolio manager in 2024. At the end of December, Pearson will take over as lead portfolio manager, and Peters will leave the fund after a transition. Peters will continue to manage the $1.4 billion T. Rowe Price Tax-Efficient Equity fund. "It will be the most uneventful transition on record because we've worked together for years," Pearson says. "Consistency is the approach."

The duo seeks steady, long-term outperformance through disciplined stock selection, rather than by timing the market or making big sector bets.

"We want to have companies that we think will grow up to become larger and successful," says Peters. "Successful companies are good capital allocators, have management teams that execute well, and aren't overvalued."

They rely on T. Rowe analysts' bottom-up fundamental research to find companies trading at discounts relative to their history and that show signs Wall Street is underestimating long-term revenue growth. Peters and Pearson have found over the years that, more than any other metric, the strength of analysts' expectations is key to how well stocks will perform.

"Nothing always works, but when good news is happening to companies, when numbers are moving up, your hit rate goes up substantially. That's our focus more than any specific style or [metric]," Pearson says.

They also have sharp risk controls. Every six months they review all their investments, looking at corporate debt levels and revisiting portfolio positioning to map out how each holding correlates with other investments and to estimate how each name would perform during bearish market extremes. Peters says they consider risk management as a contributor to their excess return.

Peters and Pearson let their winners ride to take advantage of compounding, but they will gradually sell when mid-caps graduate to large-caps, using the Russell Midcap benchmark cutoff as their guide.

One of the bigger mid-cap names they own is No. 1 holding Howmet Aerospace, which they first bought in 2022. The specialty-parts manufacturer of aerospace components contributed handsomely to last year's strong performance. It is currently trading at 47 times 12-month forward earnings, which Peters says is somewhat expensive, but it boasts consensus estimates of 23.8% on long-term revenue growth over three to five years.

Mid Cap Growth bought luxury-goods company Ralph Lauren this past summer, and the duo are impressed with how management continues to nurture the brand. It trades at 21.7 times 12-month forward earnings, and long-term revenue growth is estimated at 13.5%.

"They're playing the long game and are cheaper than the traditional European luxury companies," Peters says, also pointing out that Ralph Lauren isn't overly dependent on any one region for growth, unlike some peers that were overexposed to Chinese consumers when that economy softened.

Two purchases in the past 12 months demonstrate how Peters and Pearson think about portfolio composition to keep their roughly 245 holdings diversified.

They bought Encompass Health, the dominant player in the patient rehabilitation hospital market, in June 2024. They expect it to benefit from demographic demand as baby boomers and Gen Xers need services such as joint replacements and have major medical events such as strokes. Costs for these services are cheaper at hospitals like Encompass, Peters says. The stock trades at 18.2 times 12-month forward earnings, with long-term growth estimates around 14.4%. They expect this lesser-known company will be a solid compounder.

Peters and Pearson are impressed by the way Colleen Keating, the relatively new CEO of Planet Fitness, seems to be turning around the company. She was brought on in June 2024, and the duo bought the low-cost gym franchise a month later, with an eye on the trend of healthy living.

"It's easy to join and quit, so it's not a roach motel for customers," Peters says, noting that it trades at 29.2 times 12-month forward earnings, with growth estimates at 15.6%.

Mid Cap Growth's portfolio is intentionally structured to prevent a few holdings from dominating returns. That diversity also helps the portfolio perform in various economic environments, the duo says. With its focus on valuation, the fund tends to lag behind its peers when market leadership is driven by speculative or risk-seeking markets, or when markets are driven strongly by momentum.

While they see 2026 as being a good year for mid-caps, Peters and Pearson don't take views on the economy, market direction, or other macroeconomic calls as they look for potential new holdings.

"We generally just try to find low-cost producers that have good capital allocation," Peters says.

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Planet Fitness Sees Real Estate Space Starting to Free Up — Market Talk

Dow Jones Newswires

Planet Fitness

+2.17%

Planet Fitness has seen real estate vacancies start to tick up, opening the door to opportunities to grow its footprint. "We've started to see real estate availability easing a bit, yet we're still not expecting it to be the year of the bumper crop," Finance Chief Jay Stasz says during a conference. The gym chain has seen space open up from the closing of shopping centers, discount retailers, some large groceries and pharmacies, Stasz says. The company has been working to partner with its franchisees and landlords and brokers to get access to newly available spaces, he says. Planet Fitness previously guided for under 200 new unit openings in 2026, with the metric exceeding 200 in 2027 and 2028. (kelly.cloonan@wsj.com)

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Planet Fitness Sees Influencer Strategy Pay Off — Market Talk

Dow Jones Newswires

Planet Fitness

+2.17%

Planet Fitness has been working to bolster its social and digital teams in the last year, helping it grow its presence on social media, Chief Executive Colleen Keating says at a conference. Part of the push includes a greater focus on influencers, who showed off the gym's annual Summer Pass offering for high schoolers last summer, she says. The approach boosted the popularity of the program, with 3.7 million participants in 2025, up from just shy of 3 million the prior year, she says. (kelly.cloonan@wsj.com)

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Planet Fitness Finishes Year With About 20.8 Million Members

Dow Jones Newswires

Planet Fitness

+2.17%

By Robb M. Stewart

Planet Fitness opened 181 new clubs and closed out last year with roughly 20.8 million members.

The operator and franchisor of fitness centers said full year system-wide comparable same-site sales increased by 6.7%.

The company increased the number of Planet Fitness clubs to 2,896 in 2025, including opening 23 corporate-owned locations, and placed equipment in 152 new franchised locations.

"We delivered strong results in 2025 and exceeded key growth objectives we outlined at the start of the year," Chief Executive Colleen Keating said.

In premarket trading, Planet Fitness's shares were 2.1% higher. The stock last closed at $106.85, up 5.3% over the last 12 months.

Write to Robb M. Stewart at robb.stewart@wsj.com

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Ralph Lauren (RL): Buy, Sell, or Hold Post Q3 Earnings?

Stock Story

Ralph Lauren

-2.61%

Since January 2021, the S&P 500 has delivered a total return of 82%. But one standout stock has more than doubled the market - over the past five years, Ralph Lauren has surged 223% to $370.10 per share. Its momentum hasn’t stopped as it’s also gained 28.1% in the last six months thanks to its solid quarterly results, beating the S&P by 17.7%.

Is there a buying opportunity in Ralph Lauren, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Do We Think Ralph Lauren Will Underperform?

Despite the momentum, we're swiping left on Ralph Lauren for now. Here are three reasons there are better opportunities than RL and a stock we'd rather own.

1. Weak Constant Currency Growth Points to Soft Demand

Investors interested in Apparel and Accessories companies should track constant currency revenue in addition to reported revenue. This metric excludes currency movements, which are outside of Ralph Lauren’s control and are not indicative of underlying demand.

Over the last two years, Ralph Lauren’s constant currency revenue averaged 7.9% year-on-year growth. This performance was underwhelming and suggests it might have to lower prices or invest in product improvements to accelerate growth, factors that can hinder near-term profitability.

Ralph Lauren Constant Currency Revenue Growth

2. Weak Operating Margin Could Cause Trouble

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Ralph Lauren’s operating margin has been trending up over the last 12 months and averaged 13.1% over the last two years. The company’s higher efficiency is a breath of fresh air, but its suboptimal cost structure means it still sports inadequate profitability for a consumer discretionary business.

Ralph Lauren Trailing 12-Month Operating Margin (GAAP)

3. Mediocre Free Cash Flow Margin Limits Reinvestment Potential

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Ralph Lauren has shown poor cash profitability over the last two years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 11.3%, lousy for a consumer discretionary business.

Ralph Lauren Trailing 12-Month Free Cash Flow Margin

Final Judgment

We cheer for all companies serving everyday consumers, but in the case of Ralph Lauren, we’ll be cheering from the sidelines. With its shares topping the market in recent months, the stock trades at 23× forward P/E (or $370.10 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - you can find more timely opportunities elsewhere. Let us point you toward one of our top software and edge computing picks.

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Q3 Earnings Roundup: Live Nation (NYSE:LYV) And The Rest Of The Leisure Facilities Segment

Stock Story

AMC Entertainment

+5.14%

Live Nation Entertainment

-0.84%

Planet Fitness

+2.17%

United Parks & Resorts

+5.84%

Xponential Fitness

-0.58%

The end of the earnings season is always a good time to take a step back and see who shined (and who not so much). Let’s take a look at how leisure facilities stocks fared in Q3, starting with Live Nation .

Leisure facilities companies often sell experiences rather than tangible products, and in the last decade-plus, consumers have slowly shifted their spending from "things" to "experiences". Leisure facilities seek to benefit but must innovate to do so because of the industry's high competition and capital intensity.

The 11 leisure facilities stocks we track reported a satisfactory Q3. As a group, revenues missed analysts’ consensus estimates by 0.7% while next quarter’s revenue guidance was 0.6% below.

Thankfully, share prices of the companies have been resilient as they are up 9.2% on average since the latest earnings results.

Live Nation

Owner of Ticketmaster and operator of music festival EDC, Live Nation is a company specializing in live event promotion, venue management, and ticketing services for concerts and shows.

Live Nation reported revenues of $8.50 billion, up 11.1% year on year. This print fell short of analysts’ expectations by 0.9%, but it was still a satisfactory quarter for the company with an impressive beat of analysts’ adjusted operating income estimates but a miss of analysts’ events estimates.

Unsurprisingly, the stock is down 3.4% since reporting and currently trades at $145.57.

Best Q3: AMC Entertainment

With a profile that was raised due to meme stock mania beginning in 2021, AMC Entertainment operates movie theaters primarily in the US and Europe.

AMC Entertainment reported revenues of $1.3 billion, down 3.6% year on year, outperforming analysts’ expectations by 6.3%. The business had an exceptional quarter with an impressive beat of analysts’ EBITDA estimates and a solid beat of analysts’ adjusted operating income estimates.

AMC Entertainment achieved the biggest analyst estimates beat among its peers. Although it had a fine quarter compared its peers, the market seems unhappy with the results as the stock is down 34.5% since reporting. It currently trades at $1.65.

Weakest Q3: United Parks & Resorts

Parent company of SeaWorld and home of the world-famous Shamu, United Parks & Resorts is a theme park chain featuring marine life, live entertainment, roller coasters, and waterparks.

United Parks & Resorts reported revenues of $511.9 million, down 6.2% year on year, falling short of analysts’ expectations by 5.2%. It was a disappointing quarter as it posted a miss of analysts’ visitors estimates and a significant miss of analysts’ revenue estimates.

As expected, the stock is down 19% since the results and currently trades at $37.43.

Read our full analysis of United Parks & Resorts’s results here.

Planet Fitness

Founded by two brothers who purchased a struggling gym, Planet Fitness is a gym franchise that caters to casual fitness users by providing a friendly and inclusive atmosphere.

Planet Fitness reported revenues of $330.3 million, up 13% year on year. This number beat analysts’ expectations by 2%. It was a strong quarter as it also put up an impressive beat of analysts’ adjusted operating income estimates and a narrow beat of analysts’ same-store sales estimates.

The stock is up 16.5% since reporting and currently trades at $106.86.

Read our full, actionable report on Planet Fitness here, it’s free.

Xponential Fitness

Owner of CycleBar, Rumble, and Club Pilates, Xponential Fitness is a boutique fitness brand offering diverse and specialized exercise experiences.

Xponential Fitness reported revenues of $78.82 million, down 2.1% year on year. This result surpassed analysts’ expectations by 3.9%. Overall, it was a very strong quarter as it also recorded a beat of analysts’ EPS estimates and a solid beat of analysts’ EBITDA estimates.

The stock is up 32% since reporting and currently trades at $8.32.

Read our full, actionable report on Xponential Fitness here, it’s free.

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Why Howmet (HWM) Stock Is Up Today

Stock Story

Howmet Aerospace

-3.78%

What Happened?

Shares of aerospace and defense company Howmet jumped 3.3% in the morning session after Baird raised its price target on the company to $310 from $225 while keeping an Outperform rating.

This sentiment was echoed by other firms, as both Bernstein and BofA Securities also increased their price targets. The positive outlook from analysts appeared to be rooted in the company's solid financial results. Howmet had demonstrated strong year-over-year revenue growth, fueled by notable increases in its commercial and defense aerospace segments. In addition, the company had previously raised its own financial guidance, citing expectations for healthy market demand and potential market share gains.

After the initial pop the shares cooled down to $217.64, up 3.6% from previous close.

What Is The Market Telling Us

Howmet’s shares are not very volatile and have only had 7 moves greater than 5% over the last year. In that context, today’s move indicates the market considers this news meaningful, although it might not be something that would fundamentally change its perception of the business.

The biggest move we wrote about over the last year was 5 months ago when the stock dropped 10.2% on the news that the company reported record-breaking second-quarter financial results that were overshadowed by a decline in its Forged Wheels business segment.

The company posted record second-quarter revenue of $2.05 billion and a 36% jump in adjusted earnings per share, and also lifted its full-year financial outlook. However, investors appeared to focus on a weak spot in the report. Howmet's Forged Wheels segment, which serves commercial transportation, experienced a 1% revenue dip. The company connected this to a broader 4% decline in the commercial transportation market. This specific weakness, combined with the stock's nearly 76% rally year-to-date, likely prompted investors to take profits despite the strong headline numbers.

Howmet is up 2.8% since the beginning of the year, and at $217.64 per share, has set a new 52-week high. Investors who bought $1,000 worth of Howmet’s shares 5 years ago would now be looking at an investment worth $7,715.

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