Impact of Different Stages of Industry Life Cycle on Stock Price

Any industry generally has its life cycle. Because of theexistence of the industry life cycle, the stock prices of Companies in theindustry are deeply affected by the development stage of the industry. Thestages of industry life cycle are as follows:

(1)Pioneering period

An industry is still in the initial stage, which is oftena period of technological innovation. Due to its bright prospects, many companies have been attracted to enter the industry and invest in the trend of innovation and transformation of new technologies and new products. After aperiod of competition, some companies' products are accepted by market consumers and gradually occupy and control the market, while more companies are eliminated in the process of competition. Therefore, in the growth period ofthis industry, technological progress is very rapid, the profit is extremely considerable, and the risk is the greatest. Therefore, the stock price often fluctuates.

(2) Expansion period

During this period, a few large companies have basically controlled the industry. After the capital accumulation and continuous improvement in technology, these big companies have achieved abundant financial resources and high economic benefits, and their technological innovation is developing smoothly. The increase of the company's profit mainly depends on the expansion of the company's economic scale and the steady growth. During thisperiod, the company's stock price is basically in a stable upward trend. Ifinvestors can enter the market at an appropriate price during the expansion period, their profits will increase with the growth of the company's benefits.

(3) Stagnation period

As the market begin to tend to saturation, the growth ofthe industry's production scale starts to be hindered, even shrinking and declining. However, during this period, the companies within the industry donot give up competition, so the profits will show a downward trend. Therefore,in the stagnation period, the stock market performance of the industry is flator decline, and some industries are even eliminated because of outdated products. At this time, investors should seize the opportunity to sell stocksand invest their earnings in growth-oriented enterprises or companies.