Industry - Discretionary

Discretionary 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) -10%
WACC Discount Rate 9%
Comparative Multiples Stat Notes
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
Revenue Growth 6%
EBITDA Margin 16%
EBIT Margin 10%
Cash Flow Margin 4%
Taxes Rate 30%
Debt-Equity Ratio 61% High ~ Bad for investors
ROIC 1% Low ~ Bad for investors
Reinvestment Rate 2%
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.