MYR Group has been on fire lately. In the past six months alone, the company’s stock price has rocketed 53.1%, reaching $185.50 per share. This was partly due to its solid quarterly results, and the performance may have investors wondering how to approach the situation.
Is now the time to buy MYR Group, or should you be careful about including it in your portfolio? Get the full stock story straight from our expert analysts, it’s free.
Why Do We Think MYR Group Will Underperform?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons there are better opportunities than MYRG and a stock we'd rather own.
1. Backlog Declines as Orders Drop
In addition to reported revenue, backlog is a useful data point for analyzing Construction and Maintenance Services companies. This metric shows the value of outstanding orders that have not yet been executed or delivered, giving visibility into MYR Group’s future revenue streams.
MYR Group’s backlog came in at $2.33 billion in the latest quarter, and it averaged 2.4% year-on-year declines over the last two years. This performance was underwhelming and shows the company is not winning new orders. It also suggests there may be increasing competition or market saturation. 
2. EPS Took a Dip Over the Last Two Years
Although long-term earnings trends give us the big picture, we like to analyze EPS over a shorter period to see if we are missing a change in the business.
Sadly for MYR Group, its EPS declined by 4.6% annually over the last two years while its revenue grew by 1.3%. This tells us the company became less profitable on a per-share basis as it expanded.
3. New Investments Fail to Bear Fruit as ROIC Declines
ROIC, or return on invested capital, is a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).
We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, MYR Group’s ROIC has unfortunately decreased. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.
Final Judgment
MYR Group falls short of our quality standards. After the recent surge, the stock trades at 26× forward P/E (or $185.50 per share). This multiple tells us a lot of good news is priced in - you can find more timely opportunities elsewhere. We’d suggest looking at one of our top digital advertising picks.
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