Three Profitable Stocks to Avoid and Better Alternatives to Consider

Three profitable companies to avoid are F5 (FFIV), Karat Packaging (KRT), and Caterpillar (CAT) due to declining ARR, weak revenue growth, and restricted ability to fund investments or reward shareholders. Instead, consider other investment opportunities.

Investors are often advised to avoid companies that show signs of declining annual recurring revenue (ARR), weak revenue growth, and limited ability to fund investments or reward shareholders. Based on recent financial performance and market trends, three companies stand out as potential risks: F5 Networks (FFIV), Karat Packaging (KRT), and Caterpillar (CAT).

F5 Networks (FFIV)
F5 Networks reported strong Q3 FY2025 revenue growth of 12% to $780 million, raising its full-year guidance to 9% from 6.5%-7.5% [1]. However, despite this performance, F5 holds just 0.51% market share in computer networks, trailing Cisco (86.86%) and Juniper (8.13%) [1]. Analysts upgraded Q4 2025 EPS estimates to $3.97 but assigned a "hold" consensus due to stretched valuation (P/E 28.37) and competitive pressures [1]. F5’s strategic partnerships with Intel and NVIDIA and R&D in WebAssembly/AI tools aim to offset valuation risks and maintain growth momentum [1].

Karat Packaging (KRT)
Karat Packaging Inc. (NASDAQ: KRT) has been facing significant challenges. Quantitative analysis and technical indicators suggest a potential downward trend in the stock price. Based on the 15-minute chart, a bearish trend has been indicated by the KDJ Death Cross and a Bearish Marubozu pattern observed on August 25, 2022, at 3:00 PM [2]. KRT has negative earnings per share (EPS) revisions and declining growth, leading to a Sell rating from Seeking Alpha's Quant rating system [2]. Its capital expenditure (CAPEX) growth has been negative at -51.77% year-over-year, indicating a lack of investment in growth [2].

Caterpillar (CAT)
Caterpillar’s stock (CAT) slid 2.7% in extended trading on Thursday after it flagged a U.S. tariff impact of up to $1.8 billion in 2025, more than previously feared [3]. The company stated that it expects the third-quarter tariff impact to be between $500 million and $600 million, compared with the $500 million it projected earlier this month [3]. Caterpillar’s move into mission-critical infrastructure for the fast-growing data center segment with Hunt Energy could enhance its long-term prospects, but the immediate impact of tariffs and trade negotiations remains a concern [4].

Conclusion
While F5, Karat Packaging, and Caterpillar have shown profitability and growth in certain areas, their declining ARR, weak revenue growth, and restricted ability to fund investments or reward shareholders make them risky investments. Investors should consider other opportunities within their respective sectors.

References
[1] https://www.ainvest.com/news/f5-ffiv-poised-sustained-growth-strong-earnings-momentum-upside-revisions-2508/
[2] https://www.ainvest.com/news/karat-packaging-15-min-chart-shows-kdj-death-cross-bearish-marubozu-2508-12/
[3] https://stocktwits.com/news-articles/markets/equity/why-did-caterpillar-stock-fall-over-2-in-after-hours-trading/chtTGZ0RdZB
[4] https://finance.yahoo.com/news/caterpillar-hunt-energy-data-center-100759662.html