The Russell 2000 (^RUT) is packed with potential breakout stocks, thanks to its focus on smaller companies with high growth potential. However, smaller size also means these businesses often lack the resilience and financial flexibility of large-cap firms, making careful selection crucial.

The high-risk, high-reward nature of the Russell 2000 makes stock selection critical, and we’re here to guide you toward the right ones. That said, here is one Russell 2000 stock that could be the next big thing and two that may struggle to keep up.

Two Stocks to Sell:

MYR Group (MYRG)

Market Cap: $3.56 billion

Constructing electrical and phone lines in the American Midwest dating back to the 1890s, MYR Group (NASDAQ: MYRG) is a specialty contractor in the electrical construction industry.

Why Are We Hesitant About MYRG?

1. Backlog has dropped by 4.3% on average over the past two years, suggesting it’s losing orders as competition picks up
2. High input costs result in an inferior gross margin of 10.8% that must be offset through higher volumes
3. Waning returns on capital imply its previous profit engines are losing steam

MYR Group is trading at $229.63 per share, or 26.7x forward P/E. Dive into our free research report to see why there are better opportunities than MYRG.

Artisan Partners (APAM)

Market Cap: $2.98 billion

Founded in 1994 with a focus on autonomous investment teams and a "high-value-added" approach, Artisan Partners (NYSE: APAM) is an investment management firm that offers actively managed equity and fixed income strategies to institutional and individual investors.

Why Does APAM Worry Us?

1. Annual revenue growth of 6.5% over the last five years was below our standards for the financials sector
2. Performance over the past five years shows its incremental sales were less profitable, as its 4.3% annual earnings per share growth trailed its revenue gains

At $42.30 per share, Artisan Partners trades at 10.7x forward P/E. Read our free research report to see why you should think twice about including APAM in your portfolio.

One Stock to Buy:

1st Source (SRCE)

Market Cap: $1.50 billion

Tracing its roots back to 1863 during the Civil War era, 1st Source Corporation (NASDAQ: SRCE) is a regional bank holding company that provides commercial, consumer, specialty finance, and wealth management services across Indiana, Michigan, and Florida.

Why Are We Backing SRCE?

1. Net interest margin grew by 48.7 basis points (100 basis points = 1 percentage point) over the last two years, giving the firm more chips to play with
2. Performance over the past two years shows its incremental sales were extremely profitable, as its annual earnings per share growth of 11.3% outpaced its revenue gains
3. Impressive 8.7% annual tangible book value per share growth over the last five years indicates it’s building equity value this cycle

1st Source’s stock price of $61.46 implies a valuation ratio of 1.2x forward P/B. Is now a good time to buy? Find out in our full research report, it’s free for active Edge members.

High-Quality Stocks for All Market Conditions

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