What is a Pure-play company?

Pure-play company is referred to as a company which focuses on the production of only one product or service. For example, a company only manufactures mobile phones and doesn’t diversify its products is considered as pre-play Company.

The pure-play company are the favourite choice of many of the investors as it is easier for investors to analyse. When investing in Pure Plays you’ll have maximum exposure to a distinct market part. They are more predictable since the company’s performance is only based on a single commodity or service.

For example, if you invest in McDonald’s, you don’t have to worry about anything else like other market or commodity. The company only sells fast food.

Let’s have a look at another example. If you wish to invest in car makers stocks you might prefer buying Tesla stock. As compared to Yamaha Motor Co. which is engaged not only in manufacturing cars but also in many other sectors. There are plenty of firms that are Pure-play company in specific businesses. For example, Tiffany & Co. is a pure-play on luxury goods. Buffalo Wild Wings is a pure-play on the restaurant business.

There are many companies which are pure plays. They produce and sell one kind of product. Investment in such companies is considered risky sometimes.  Even with a slight change in the market, the company will be affected negatively. So the pure-play procedure is used by the investors to estimate a project’s beta or the risk of a project.

Advantages and disadvantages of the Pure Play method

Pure play stocks are easier to analyse. It is very difficult to analyse a company’s revenue which has diversified products. But for Pure-play company, it is easier than you think because they concentrated only on a single product and all revenue of the company comes from that single product.

Another advantage of investing in pure-play companies is, it provides a high return. When the market is going good the investors get a huge benefit from pure-play stocks. Because it manufactures a single product. Investors can have the benefit of a single product in a favourable market condition.

But things may get worse if the market conditions are adverse. The Pure-play company does not produce any other products and all the revenue of the company comes from only one product. Any Slight adverse change in the market may affect the stock price of pure plays. And the stock price of such companies sometimes drops very sharply. This will make investing in pure-play companies is riskier.