Even if they go mostly unnoticed, industrial businesses are the backbone of our country. Their momentum is also rising as lower interest rates have incentivized higher capital spending. As a result, the industry has posted a 26% gain over the past six months, beating the S&P 500 by 19.4 percentage points.

Regardless of these results, investors should tread carefully. The diversity of companies in this space means that not all are created equal or well-positioned for the inescapable downturn. Taking that into account, here are three industrials stocks we’re passing on.

Karat Packaging (KRT)

Market Cap: $519.6 million

Founded as Lollicup, Karat Packaging (NASDAQ: KRT) distributes and manufactures environmentally-friendly disposable foodservice packaging solutions.

Why Are We Cautious About KRT?

1. Sales trends were unexciting over the last two years as its 6.1% annual growth was below the typical industrials company
2. Revenue growth over the past two years was nullified by the company’s new share issuances as its earnings per share fell by 9.4% annually
3. Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.5% for the last five years

Karat Packaging is trading at $25.86 per share, or 16.5x forward P/E. Dive into our free research report to see why there are better opportunities than KRT.

Alamo (ALG)

Market Cap: $2.52 billion

Expanding its markets through acquisitions since its founding, Alamo (NSYE:ALG) designs, manufactures, and services vegetation management and infrastructure maintenance equipment for governmental, industrial, and agricultural use.

Why Does ALG Worry Us?

1. Customers postponed purchases of its products and services this cycle as its revenue declined by 1.3% annually over the last two years
2. Gross margin of 25.5% reflects its high production costs
3. Earnings per share have dipped by 5.7% annually over the past two years, which is concerning because stock prices follow EPS over the long term

At $208.65 per share, Alamo trades at 18x forward P/E. If you’re considering ALG for your portfolio, see our FREE research report to learn more.

Matrix Service (MTRX)

Market Cap: $311.1 million

Founded in Oklahoma, Matrix Service (NASDAQ: MTRX) provides engineering, fabrication, construction, and maintenance services primarily to the energy and industrial markets.

Why Is MTRX Not Exciting?

1. Sales trends were unexciting over the last five years as its 1.1% annual growth was below the typical industrials company
2. High input costs result in an inferior gross margin of 3.7% that must be offset through higher volumes
3. Issuance of new shares over the last five years caused its earnings per share to fall by 21.4% annually while its revenue grew

Matrix Service’s stock price of $11.08 implies a valuation ratio of 17.3x forward P/E. To fully understand why you should be careful with MTRX, check out our full research report (it’s free).

Stocks We Like More

The market’s up big this year - but there’s a catch. Just 4 stocks account for half the S&P 500’s entire gain. That kind of concentration makes investors nervous, and for good reason. While everyone piles into the same crowded names, smart investors are hunting quality where no one’s looking - and paying a fraction of the price. Check out the high-quality names we’ve flagged in our Top 6 Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 244% over the last five years (as of June 30, 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,326% between June 2020 and June 2025) as well as under-the-radar businesses like the once-micro-cap company Kadant (+351% five-year return). Find your next big winner with StockStory today.