Contrarian Value Investing in Mid-Cap Equities: Uncovering Brand Resilience and Structural Demand

In an era marked by market volatility and shifting investor priorities, contrarian value investing in mid-cap equities has emerged as a compelling strategy for those seeking long-term growth. Mid-cap companies often occupy a unique space between the stability of large-cap giants and the high-growth potential of small-cap innovators. However, their success hinges on a critical factor: the ability to withstand economic cycles while capitalizing on structural demand trends. Two companies that exemplify this dynamic-Ralph Lauren and Planet Fitness-have drawn the attention of strategic investors, including those managing top-performing mid-cap value funds.

The Strategic Lens of Mid-Cap Value Funds

Mid-cap value funds, such as the Hotchkis & Wiley Value Opportunities Fund (HWAZX) and the Morgan Stanley Pathway - Small-Mid Cap Equity ETF (MSSM), prioritize undervalued companies with strong fundamentals or those undergoing transformative phases. These funds typically hold between 45–75 issuers, balancing equity investments with opportunistic allocations to bonds, preferred stock, and merger arbitrage. Their strategies are rooted in identifying market inefficiencies, often favoring firms with durable brands, scalable business models, and long-term growth catalysts.

For instance, the Morgan Stanley Pathway - Small-Mid Cap Equity ETF (MSSM) explicitly includes Planet Fitness in its portfolio, reflecting confidence in the company's structural demand drivers. Similarly, Ralph Lauren (RL) has been highlighted in fund analyses for its disciplined approach to balancing business reinvestment and shareholder returns, a trait that aligns with value-oriented strategies.

Planet Fitness: A Case Study in Structural Demand

Planet Fitness's performance in 2025 underscores its appeal to contrarian investors. The company reported a 13.3% year-over-year revenue increase in Q2 2025, driven by 8.2% growth in same-club sales. By year-end, it had expanded to 2,896 locations-a net addition of 181 clubs-and achieved 20.8 million members, with full-year same-club sales rising 6.7%. These metrics highlight a business model that thrives on recurring revenue and low-cost accessibility, key attributes in an inflationary environment where discretionary spending is scrutinized.

Moreover, Planet Fitness's long-term targets-low-double-digit revenue growth and mid-teens adjusted EBITDA growth through 2028-signal a disciplined approach to scaling. For mid-cap funds, this represents a rare combination of predictable cash flows and expansion potential, making it a strategic holding amid broader market uncertainties.

Ralph Lauren: Brand Resilience in a Shifting Retail Landscape

Ralph Lauren's strategic reinvention offers another compelling example of contrarian value. The company has committed to mid-single-digit revenue growth through fiscal 2028 while prioritizing operating profit expansion and $2 billion in shareholder returns via dividends and buybacks. This dual focus on reinvestment and capital efficiency is critical for a brand navigating the challenges of e-commerce and evolving consumer preferences.

Financial metrics further reinforce its resilience. Ralph Lauren's trailing twelve months (TTM) and next twelve months (NTM) earnings per share ratios rose from 12.33 to 13.82, reflecting improved profitability despite industry-wide pressures. Its global retail footprint-spanning 564 stores and 671 concessions-provides a scalable foundation for growth, particularly in markets where luxury design remains aspirational.

The Contrarian Edge: Aligning Fundamentals with Market Sentiment

The inclusion of Planet Fitness and Ralph Lauren in mid-cap value portfolios reflects a broader contrarian thesis: investing in companies whose intrinsic value is underappreciated by broader market sentiment. While Planet Fitness operates in a sector often dismissed as "mature," its unit economics and expansion pipeline offer growth at a reasonable price. Similarly, Ralph Lauren's ability to balance brand equity with financial discipline challenges narratives of declining relevance in the retail sector.

For investors, this approach demands patience and a focus on long-term horizons. Mid-cap value funds like MSSM and HWAZX exemplify this mindset, leveraging their agility to capitalize on mispriced assets while mitigating risks through diversified holdings. As structural trends-such as the rise of fitness-as-a-service and the enduring appeal of aspirational branding-gain momentum, these companies are well-positioned to outperform.

Conclusion

Contrarian value investing in mid-cap equities is not merely about low valuations; it is about identifying companies with durable competitive advantages and the capacity to adapt to evolving demand. Planet Fitness and Ralph Lauren, through their strategic execution and financial prudence, embody this ethos. For investors aligned with the principles of value investing, their inclusion in top-tier mid-cap funds serves as a testament to their potential-a reminder that resilience and innovation often thrive where others see only risk.