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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. Keeping that in mind, here is one Russell 2000 stock that could be the next big thing and two best left off your watchlist.

Two Stocks to Sell:

MYR Group (MYRG)

Market Cap: $1.99 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 Do We Steer Clear of MYRG?

1. Average backlog growth of 1.8% over the past two years was mediocre and suggests fewer customers signed long-term contracts

2. Free cash flow margin dropped by 5.5 percentage points over the last five years, implying the company became more capital intensive as competition picked up

3. Shrinking returns on capital suggest that increasing competition is eating into the company’s profitability

At $121.15 per share, MYR Group trades at 21.1x forward price-to-earnings. To fully understand why you should be careful with MYRG, check out our full research report (it’s free).

iHeartMedia (IHRT)

Market Cap: $147 million

Occasionally featuring celebrity hosts like Ryan Seacrest on its shows, iHeartMedia (NASDAQ:IHRT) is a leading multimedia company renowned for its extensive network of radio stations, digital platforms, and live events across the globe.

Why Are We Out on IHRT?

1. Sales stagnated over the last two years and signal the need for new growth strategies

2. Performance over the past five years shows each sale was less profitable, as its earnings per share fell by 15.9% annually

3. Limited cash reserves may force the company to seek unfavorable financing terms that could dilute shareholders

iHeartMedia is trading at $1.01 per share, or 0.2x forward EV-to-EBITDA. If you’re considering IHRT for your portfolio, see our FREE research report to learn more.

One Stock to Watch:

ACV Auctions (ACVA)

Market Cap: $2.52 billion

Founded in 2014, ACV Auctions (NASDAQ:ACVA) is an online auction marketplace for car dealers and wholesalers to buy and sell used cars.

Why Do We Watch ACVA?

1. Marketplace Units are rising, meaning the company can increase revenue without incurring additional customer acquisition costs if it can cross-sell additional products and features

2. EBITDA margin expanded by 16.7 percentage points over the last few years as it scaled and became more efficient

3. Earnings per share grew by 28.1% annually over the last three years, massively outpacing its peers