Groww Logo
SHARE

Pure Play

The contrast in thinking is what allows stock markets to function. A group of people must be bearish on stock while others must be bullish at the same time for continuous buying and selling to occur. Everything in the markets is defined by the difference in mental processes. 

There are several approaches to catering to a wide range of customers. Some people believe in buying at the correct price, while others are more concerned with the possibility of growth. Similarly, there are different types of publicly traded firms. Some firms are separate from one another. Some businesses, on the other hand, specialize in a specific field. A Pure play company is the second sort of business.

Pure Play Meaning

Pure-play companies are publicly traded corporations that concentrate all of their resources and efforts on a single line of activity. The performance of stocks is highly correlated with the performance of their industry or sector. Pure-play companies cater to a single niche market and have simpler, easier-to-understand cash flows and revenue structures than companies with wide product portfolios and many sources of revenue. There is a widespread belief among investors that pure-play stocks do badly in bear markets and are associated with higher levels of risk.

Pure plays include e-commerce companies, electronic retailers, and simply e-tailers, who all promote their industry-specific items on the internet. These companies will be badly impacted if there is a lack of market interest in their product or a fall in the concept of electronic shopping or buying digitally.

Companies that operate multiple operations are vastly different from a pure play business. Pure-play enterprises, rather than managing activities in many industries or sectors, concentrate on providing a single product and service, which typically leads to market or industry leadership. Pure-play corporations are dominating players in their operating markets, even if they are not market leaders.

Pure Play Company Examples

Consider a pure-play corporation that is solely focused on one well-known commodity, such as gold.

Since the company only concentrates on one commodity, the questions you'd ask to acquire a clear picture are considerably simpler than if you were evaluating a multi-industry corporation. Furthermore, investors are not required to consider the cash flows of various business models. One method the mining firm makes money is by selling the gold it mines. 

IBM sells goods, develops databases and software, and provides IT support to clients. These three distinct revenue streams are unrelated and are affected in different ways by economic ups and downs. As a result, analyzing it is more difficult for an investor than analyzing it using the pure-play method.

Benefits of Pure Play Investments

Investors interested in companies that specialize in a particular product or service line may benefit from investing in pure plays. The following are some of the potential benefits of investing in pure plays:

Certain firms or industries may be avoided if you adopt environmental, social, and governance (ESG) principles or a socially responsible investing (SRI) strategy. As pure plays only have one product line, there is more transparency in terms of what the company does. It might be difficult to sort through dozens or even hundreds of subsidiaries to determine which ones most closely reflect your beliefs.

Investors can utilize a variety of indicators when researching companies, including fundamentals and technical indicators. While they can assist in making informed investment decisions, it is easy to become engrossed in the numbers. Pure play investments - on the other hand, are simpler to evaluate due to their narrow focus. 

For example, comparing two pure-play companies in the same industry that sell identical items is easy.

Investing in pure plays may provide investors with higher returns. If the company behind a product or service is regarded as an industry leader, revenues are more likely to remain stable or expand over time. This could result in higher returns for investors as well as regular dividend payments from dividend-paying pure-play companies.

Things of Consideration While Investing in Pure Play

Pure plays can be rewarding, but because of their narrow concentration, they also carry a larger risk. Pure plays may be more susceptible to rapidly shifting market conditions, so investors must be more hands-on. You might buy a pure-play exchange-traded fund (ETF) instead of individual equities if you want to be more hands-off or want to have numerous pure plays in one basket. These ETFs help you to diversify your risk in your portfolio by giving you exposure to a variety of pure-play assets.

Pure Play - FAQs

Q1. What is the Pure Play strategy?

The pure-play method is a term used in finance to describe a way of evaluating the cost of equity capital for private enterprises. It necessitates locating and analyzing the beta coefficient of other publicly traded and single-focused businesses. This is the beta coefficient of a pure-play publicly traded firm with a single business focus, which is used to calculate the private company's beta coefficient. The method can also be used to calculate the cost of capital for projects that are not part of a company's core operation.

Q2. Is there a risk in the pure-play method?

The investing style of the investors that select pure-play companies as their preferred investment have a significant impact on their performance. Pureplay firm stocks, if preferred by growth investors, are likely to do well during a bull market, with growth stocks outperforming the market.

 

In down market conditions, a pure-play firm supported by growth investors may perform poorly, despite the fact that a value investment strategy has historically proven lucrative. The single sector dependence, single focus product line, or high-risk link with a single investing strategy concentration can all be blamed for poor performance.

Q3. What is the meaning of the pure-play eCommerce platform?

Pure-play e-commerce refers to firms that only sell through their websites.

Q4. Should I invest in pure-play?

As they are only focused on a particular company type or product line, pure-play companies are easier to examine, assess, and evaluate for growth potential. In comparison to diversified organizations, pure-play companies' business and strategy models are far more predictable, making it easier to assess predicted growth. Pure-play firms' reputation in their focused niche grows as their performance improves, affecting their revenue and, as a result, their share prices, making them appealing investments for their investors and shareholders.

Q5. What is an example of pure play?

Big corporations can also be pure plays. For example, Dunkin' Brands Group (DNKN), which operates Dunkin' Donuts coffee shops, and Starbucks (SBUX) are both pure coffee bets.

ⓒ 2016-2022 Groww. All rights reserved, Built with in India
MOST POPULAR ON GROWWVERSION - 3.2.5
STOCK MARKET INDICES:  S&P BSE SENSEX |  S&P BSE 100 |  NIFTY 100 |  NIFTY 50 |  NIFTY MIDCAP 100 |  NIFTY BANK |  NIFTY NEXT 50
MUTUAL FUNDS COMPANIES:  ICICI PRUDENTIAL |  HDFC |  NIPPON INDIA |  ADITYA BIRLA SUN LIFE |  SBI |  UTI |  FRANKLIN TEMPLETON |  KOTAK MAHINDRA |  IDFC |  DSP |  AXIS |  TATA |  L&T |  SUNDARAM |  PGIM |  INVESCO |  LIC |  JM FINANCIAL |  BARODA PIONEER |  CANARA ROBECO |  HSBC |  IDBI |  INDIABULLS |  MOTILAL OSWAL |  BNP PARIBAS |  MIRAE ASSET |  PRINCIPAL |  BOI AXA |  UNION KBC |  TAURUS |  EDELWEISS |  NAVI |  MAHINDRA |  QUANTUM |  PPFAS |  IIFL |  Quant |  SHRIRAM |  SAHARA |  ITI