Fundamental Analysis For Dummies, 2nd Edition

Chapter 16

Digging into an Industry’s Fundamentals

IN THIS CHAPTER

Understanding how a company’s value may be affected by the industry it’s in

Getting in sync with the unique characteristics of different industries

Comparing one company’s fundamentals with its industry’s to gain better insight

Realizing how important the concept of market share is in powering a company’s profit

If you want to know what your kids are up to at school, just look at their friends and you’ll get a pretty good idea. It’s also common for employees at a company to adopt similar behavior, called corporate culture.

As strange as it might sound, you can learn quite a bit about companies, too, by examining what other companies they’re lumped in with. Oftentimes, companies in the same line of work, or industry, have similar financial characteristics and idiosyncrasies. The industry a company is in can also contribute to its stock price performance as investors apply comparable valuations to different companies in the same business.

Understanding what kind of company a company keeps is an important piece of the fundamental analysis puzzle. While you may analyze an individual company by reviewing its financial statements, it’s vital to understand the environment the company operates in and the industry dynamics at work.

You’ll discover the ins and outs of industry analysis in this chapter. Not only will you see how a company’s industry can influence its value, but you’ll also see how a company’s fortunes may ...