Three Industrials Stocks to Avoid Amid Sector Surge

Kimball Electronics (KE) and Hayward (HAYW) are industrials stocks to avoid due to declining revenue and gross margins, falling earnings per share, and low free cash flow margins. KB Home (KBH) is also a concern due to a 20.4% drop in backlog, shrinking returns on capital, and high debt levels. These factors make it difficult for these companies to thrive in the current market environment.

Industrials stocks have been facing significant challenges in recent quarters, with several companies showing worrying signs of financial distress. Kimball Electronics (KE) and Hayward (HAYW) are among the most notable, with both experiencing declining revenue and gross margins, falling earnings per share, and low free cash flow margins. These factors have made it increasingly difficult for these companies to thrive in the current market environment.

Kimball Electronics, a provider of industrial and commercial electronics, reported a significant decline in revenue and gross margins in Q2 2025. The company's earnings per share also fell, indicating a deterioration in its financial health. While specific details on the company's free cash flow margins were not provided, the overall trend suggests that KE is struggling to maintain profitability. Similarly, Hayward, a manufacturer of aerospace components, has seen a decrease in revenue and gross margins, further exacerbating its financial difficulties Key facts: GE Aerospace saw a 23% revenue boost in Q2 2025, with adjusted earnings up 38% and free cash flow rising 92%. The firm raised its guidance, backed by a $175 billion backlog.^[1].

Another concern is KB Home (KBH), a leading homebuilder. In Q3 2025, KB Home reported a 20.4% drop in backlog, which is a critical indicator of future sales. The company also experienced a shrinking return on capital and high debt levels, which have made it challenging for KB Home to maintain its financial stability. The backlog decline, in particular, suggests that KB Home is facing significant headwinds in the residential construction market 5 Insightful Analyst Questions From KB Home’s Q3 Earnings Call^[2].

These companies face multiple headwinds that could continue to impact their financial performance. For instance, Kimball Electronics and Hayward are likely to face increased competition and pricing pressures, while KB Home must navigate a volatile housing market and manage its debt levels effectively. Investors should closely monitor these companies' financial health and operational strategies to assess their long-term prospects.