Part 3 - Industry Background
The industry cannot be viewed from a single aspect. There are many influencing factors, such as the changes in the status of the industry in which a listed company is located in the national economy, the development prospects and potentials, the impact brought by emerging industries, as well as the company's position in the industry, operating performance and operating conditions, changes in capital mix, and changes in management personnel will affect the prices of related stocks.
So why should we analyse the industry context? Because the industry in which the listed companies are located will, to a certain extent, affect the power of speculation of future generations of stocks.
For a large number of influencing factors, we can analyze the industry background from three aspects: industry market type analysis, industry life cycle analysis, industry change factor analysis. Let's talk about these three directions separately today.
We first look at the industry market type analysis, also known as the industry competition degree analysis; we can be based on the number of enterprises in the same industry, entry barriers, product differences, three factors, the market structure can be divided into perfect competition market, monopolistic competition market, oligopoly market and perfect monopoly market. Enterprises in different market structure, his operating model is also different, which also directly affects its corresponding stock value evaluation criteria.
What then is a perfectly competitive market? A perfectly competitive market is a market structure in which competition is not hindered or interfered with in any way, Simply put, there are a large number of companies of the same kind that are unable to set a price for their own products, The most typical example is the agricultural product industry, You see, for example, rice, There are a large number of companies producing rice in the market, Each company has only a small market share, and the demand is also very large, There is no concern that it will not be sold, and the price of rice is set according to market supply and demand Each supplier cannot unilaterally change the price. It is also very easy for the rice producing industry to enter or exit. This is a perfectly competitive market Looking at the graph below, where P is price, Q is quantity and the intersection of demand line D and supply line S is the equilibrium price (above), corporate profits are generally stable in this market structure. In the stock price, regardless of the impact of other factors, it is a relatively stable trend.
At this time, someone has to ask, why the sellers set the price when buying clothes. Isn't the threshold of the clothing industry also very low? Isn't he a perfectly competitive market? Let's look at it. There is an essential difference between the textile industry and the agricultural product industry. The products of the textile industry are different. For example, different brands, Right? What do you think of? Nike, Adidas, and their pricing are all different, They are all priced independently by the merchants, and supply and demand cannot affect their prices. For such products with differences and independent pricing, we call it a market of monopolistic competition. Under this kind of market structure, the trend of profit or stock price of an enterprise is evaluated Generally speaking, you have to consider his market share and pricing, which is usually reflected in the regular bulletin, as we will see in the following financial report course.
The third market structure is the oligopoly market. Different from the two market institutions mentioned above, there are many competing enterprises. In the oligopoly market, there are only a few competitors. A small number of producers occupy a large market share for a certain product and directly control the supply of the entire industry. For example, the tobacco industry and the steel industry belong to the oligopoly market. These companies have already firmly occupied a certain position in the market and their business performance is relatively stable.
The last one is a complete monopoly, which is easier to understand. An enterprise controls the market of the entire industry. We can regard some public institutions as a complete monopoly, and the performance of such companies is also very stable.