We recently published a list of 10 Best Mid Cap Tech Stocks to Buy Now. In this article, we are going to take a look at where AppFolio Inc. (NASDAQ:APPF) stands against other best mid cap tech stocks to buy now.
In an interview with CNBC, Thomas Martin, the Senior Portfolio Manager at GLOBALT Investments, highlighted that tech earnings are slowing and policy risks are rising. However, he remains positive on tech stocks as underlying fundamentals are strong. But he emphasized that diversification is key. He pointed out that while big tech hasn’t lost its luster yet, maybe it is time to look elsewhere.
Most investors focus on the big tech names like the Mag 7. As a result, there is a smaller probability of a mismatch between their valuation and their intrinsic value. The smaller tech names are usually overlooked. Hence, some of these stocks could offer deep value. Some US mid-cap stocks are deeply undervalued.
According to JP Morgan, US large-cap stocks have returned 12.6% annually over the past 10 years. Meanwhile, the same set of stocks have seen an EPS (earnings per share) growth of only 6.9% on an annualized basis, according to JP Morgan.
On the other hand, US mid-cap stocks have returned 9.3% annually over the past 10 years, with an EPS growth of 9.9% annually over the last 10 years. The large-cap stocks have seen superior returns despite lower earnings growth compared to mid-cap stocks in the same period. This underscores the value proposition of mid-cap tech stocks.
In the CNBC interview, Thomas Martin acknowledged that the Trump administration’s policies might have some effect on inflation and interest rates. However, according to Martin, those effects might be muted. That said, interest rates remain high, and smaller companies usually underperform during high interest rate regimes.
According to a quarterly report released by Pathstone in January 2025, smaller companies are facing several risks, including policy uncertainty and rising Treasury yields. As a result, while mid-cap tech stocks have potential, they need to be chosen carefully.
Mid-cap tech companies with strong balance sheets and decent profitability are better equipped to navigate through the high-interest rate period compared to those that are highly leveraged and have low profitability.
Our Methodology
We have curated a list of 10 mid-cap companies after considering the risks involved in investing in mid-cap companies. We used Finviz to include only companies with a market cap of $2 billion up to $10 billion, as we are looking for mid-cap stocks. As for the sector, we chose technology.
To weed out unwanted, low-quality mid-cap stocks, we chose only companies with decent profitability. So, we weeded out the companies with an operating margin of less than 10%. Since we want companies with a solid balance sheet, we set the long-term debt-to-equity ratio at under 0.5. We also chose companies with an average analyst upside of at least 10%. The stocks are sorted in ascending order of their upside potential. Additionally, we have mentioned the hedge fund sentiment for each stock, as of Q4 2024.
Note: All data was recorded on March 10, 2025.
At Insider Monkey we are obsessed with the stocks that hedge funds pile into. The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
A close-up shot of a user-friendly and customizable interface of the company’s software, designed to suit different workflows.
AppFolio Inc. (NASDAQ:APPF)
Upside Potential: 27.94%
Market Capitalization: $7.65 Billion
Number of Hedge Fund Holders: 40
AppFolio Inc. (NASDAQ:APPF) provides cloud-based software solutions for its customers in the property management and legal industries. The company’s software helps these businesses manage non-core tasks like accounting, billing, leasing, and customer communication more efficiently.
For property managers, AppFolio Inc. (NASDAQ:APPF) provides tools to help with tasks like collecting rent, tracking payments, and managing tenant communications. Meanwhile, for law firms, it offers software that helps manage case files, billing, and client communication. It also offers ongoing support and software updates.
Not only has the company’s revenue grown at a robust pace of 26.5% over the last five years, but its net margin has also seen a significant expansion. As of 2024, the net margin stood at a solid 25.7%. In its note on January 10, 2025, KeyBanc attributed the performance to its expanding average revenue per user. KeyBanc pointed out that the company’s stock is fairly valued on a free cash flow basis and that the stock’s current risk/reward is balanced.
Overall, APPF ranks 6th on our list of best mid cap tech stocks to buy now. While we acknowledge the growth potential of APPF, our conviction lies in the belief that AI stocks hold great promise for delivering high returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than APPF but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.