MYR Group currently trades at $282.13 and has been a dream stock for shareholders. It’s returned 283% since April 2021, blowing past the S&P 500’s 57.8% gain. The company has also beaten the index over the past six months as its stock price is up 39.7% thanks to its solid quarterly results.
Is now the time to buy MYR Group, or should you be careful about including it in your portfolio? Get the full breakdown from our expert analysts, it’s free.
Why Is MYR Group Not Exciting?
We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons you should be careful with MYRG and a stock we'd rather own.
1. Weak Backlog Growth Points to Soft Demand
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 $2.82 billion in the latest quarter, and over the last two years, its year-on-year growth averaged 5.4%. This performance was underwhelming and suggests that increasing competition is causing challenges in winning new orders. 
2. Low Gross Margin Reveals Weak Structural Profitability
At StockStory, we prefer high gross margin businesses because they indicate the company has pricing power or differentiated products, giving it a chance to generate higher operating profits.
MYR Group has bad unit economics for an industrials business, signaling it operates in a competitive market. As you can see below, it averaged a 10.8% gross margin over the last five years. Said differently, MYR Group had to pay a chunky $89.19 to its suppliers for every $100 in revenue. 
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. Unfortunately, MYR Group’s ROIC averaged 4.9 percentage point decreases each year over the last few years. 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’s business quality ultimately falls short of our standards. With its shares topping the market in recent months, the stock trades at 29× forward P/E (or $282.13 per share). Investors with a higher risk tolerance might like the company, but we don’t really see a big opportunity at the moment. We're pretty confident there are superior stocks to buy right now. We’d suggest looking at one of our all-time favorite software stocks.
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