Industry - Technology

Technology Industry Analysis, Research & Ratios (edit / improve)

Industry Analysis evaluates the major industry characteristics that affect investments. Company specific factors drive the performance of individual companies, but macro-economic factors can affect the performance, stock prices, growth rates, and chart movements of any stock, currency, or commodity. Review industry research before trading.

Industry Statistics Stat Notes
Stock Research Rating Hold
Potential (safety margin) -15%
WACC Discount Rate 10%
Comparative Multiples Stat Notes
Revenue EV Multiple 3.3x High ~ Bad for investors
EBITDA EV Multiple 12.1x
EBIT EV Multiple 13.9x
Cash Flow EV Multiple 14.4x High ~ Bad for investors
Book Value EV Multiple 0.9x
Discounted Cash Flow (DCF) Ratios Notes
Revenue Growth 20% High ~ Good for investors
EBITDA Margin 28%
EBIT Margin 23% High ~ Good for investors
Cash Flow Margin 15% High ~ Good for investors
Taxes Rate 27%
Debt-Equity Ratio 6% Low ~ Good for investors
ROIC 8% Low ~ Bad for Investors
Reinvestment Rate 5% Low ~ Good for Investors
WACC Discount Rate Rates Notes
Risk Free Rate 4% Low ~ Good for Investors
Cost of Debt 7% Low ~ Good for Investors
Equity Risk Premium 5%
Debt Required Return of Debt 5% Low ~ Good for Investors
Required Return of Equity 10% Low ~ Good for Investors

1 Investment potential (margin of safety) is a weighted average of the discounted cash flow (DCF), the enterprise value (EV) market multiple, and the Warren Buffett investment methods.

2 The weighted average cost of capital (WACC) for the industry is a broad representation of the WACC for each individual company. A sub-industry WACC offers both stability and accuracy for each individual company.

Description: The technology industry broadly includes companies whose primary function is to create innovative products and processes. Information technology deals with the management and processing of information (see full technology description and competitors).

Profit Analysis: The best way to profit from technology stock investments is to find the most undervalued investments (Wall Street and Main Street buy ratings) during economic recessions. Those investments should be undervalued (see Wall Street on left side), and have high Main Street Common Sense investment ratings (see Main Street on right side). When an economic recovery occurs, technology stocks tend to outperform the general stock market, because consumers and businesses quickly resume spending on items they wanted, but resisted buying during tougher economic times. Eventually those investments become overvalued, because profits and stock prices increase past their fair values. During the last stages of an economic business cycle, just before a recession, it is best to sell technology stocks, because they are likely to decrease in price quickly. Technology makes the lives of consumers and businesses easier, but during tough economic times, people tend to work harder, which offsets the benefits of technology temporarily. Expensive (overvalued) stocks with low Main Street Common Sense ratings should be sold at any time to invest in better stocks. Two buys ratings are the best and two sell ratings are the worst possible stock investments.

Trading Strategy: During economic recessions, consumers and businesses tend to cut back on technology expenses to save money during tough economic times and focus consumption only on basic goods. Less spending decreases business revenue and eventually decreases stock prices. During economic recoveries, consumers have more income and business investment needs, so spending quickly increases. Higher spending increases business revenue and eventually increases stock prices. During a longer economic expansion, discretionary income and business demand increases, but at a slower pace than during the recovery stage.