Consumer Discretionary Industry Research & Analysis
Discretionary Industry Research Report
Discretionary Industry Profile _ (edit/improve) The consumer discretionary industry includes companies that respond to discretionary higher spending. Discretionary income (also called disposable income or play money) is gross income - taxes - necessities. Higher discretionary income leads to greater purchases of items that are outside the scope of necessities. These items may include new cars, a second home, restaurant meals, jewelry, games, vacations, and the likes. This type of spending is the first to drop when consumers have to save money. Companies that rely on discretionary spending often have very volatile stock prices and revenue changes.
Discretionary Industry Analysis: The consumer discretionary industry includes companies whose sales come from consumer discretionary income purchases. Discretionary income = gross income less taxes and necessities such as rent, mortgage and food. Discretionary Trading Strategy: The consumer discretionary industry tends to be very sensitive to economic cycles. Look for undervalued discretionary investments during economic recessions when stock prices are low and sell discretionary investments during the late stages of a bull markets when stock prices are high. The global economy is currently in a recession, therefore, it is the perfect time to purchase consumer discretionary investments. Upward sloping stock charts and financial news may indicate a selling opportunity while the opposite means that stocks are becoming undervalued.
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.
Warren Buffett Quote: "When a management with a reputation for brilliance tackles a business with a reputation for bad economics, it is the reputation of the business that remains intact." No matter the quality of your business, industry economics is an important factor in any value investing decision.
|Stock Research Rating||Hold||…|
|Potential (safety margin)||-10%||…|
|WACC Discount Rate||9%||…|
|Revenue EV Multiple||1.4x||…|
|EBITDA EV Multiple||8.8x||…|
|EBIT EV Multiple||4.5x||Low ~ Good for investors|
|Cash Flow EV Multiple||10.1x||Low ~ Good for investors|
|Book Value EV Multiple||1.4x||…|
|Discounted Cash Flow (DCF)||Ratios||Notes|
|Cash Flow Margin||4%||…|
|Debt-Equity Ratio||61%||High ~ Bad for investors|
|ROIC||1%||Low ~ Bad 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||9%||…|
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 consumer discretionary stocks include companies whose sales come from consumer discretionary income purchases. Discretionary income = gross income less taxes and necessities such as rent, mortgage and food (see full discretionary description: competitors, industry ratios, best stocks, market leaders, aggregate SWOT Analysis, and streaming industry news).
Profit Analysis: The best way to profit from discretionary 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, discretionary stocks tend to outperform the general stock market, because consumers 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. In other words, the margin of safety becomes low or negative. During the last stages of an economic business cycle, just before a recession, it is best to sell discretionary stocks, because they are likely to decrease in price the fastest. Selling a stock investment is difficult to do properly. 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. As a general rule, the larger the investment potential (margin of safety), the safer the investment.
Trading Strategy: During economic recessions, consumers tend to cut back on discretionary expenses to save money. Less spending by consumers eventually decreases business revenue and stock prices. During economic recoveries, consumers have more discretionary income, so spending quickly increases. Higher spending increases business revenue and eventually increases stock prices. During long economic expansions, discretionary income increase, but at a slower pace than during the initial economic recovery stage.