A:

A pure play is a company that invests its resources in only one line of business. As such, this type of stock has a performance that correlates highly to the performance of the stock's particular industry. For example, many electronic retailers or "e-tailers" are pure plays. All they do is sell one particular type of product over the internet. Therefore, if internet buying declines even slightly, these companies are negatively affected.

The performance of a pure play may also be highly affected by the type of investing style that targets it. For example, if a pure play's line of business is favored by growth investing, the company will do well during a bull market, when growth stocks tend to outperform the market. Conversely, during bear markets, when a value investing strategy is historically more profitable, a pure play associated with growth investing will do poorly.

Pure plays can be contrasted with companies that have many diverse lines of business and diverse sources of revenue. For example, Tyco International is a large conglomerate involved in almost everything you can think of, from home security to plastics and adhesives. Because of this diversity within its product line, Tyco's stock performance, unlike that of a pure play, is not affected by one or two concentrated factors, but by many different variables.

Due to the nature of pure plays and their dependence on one sector of the economy, one product, or one investing strategy, they are often accompanied by higher risk. On the other hand, this higher risk brings the potential for higher rewards because when conditions are in their favor, pure play stocks can flourish.

RELATED FAQS
  1. How does stock evaluation of an electronic retailing (e-tailing) business differ ...

    Learn how stock evaluation of an Internet retailer differs from a brick-and-mortar retailer. Since 2005, online commerce ... Read Answer >>
  2. How can I invest in electronic retailing (e-tailing)? (AMZN, W)

    Learn about the different ways to invest in electronic retail. Amazon.com and Alibaba are the two dominant players in electronic ... Read Answer >>
  3. How does the performance of the stock market affect individual businesses?

    Learn how stock markets affect individual businesses by influencing consumer spending levels and affecting the way companies ... Read Answer >>
  4. How does market share affect a company's stock performance?

    Discover how market share affects a company's performance. Market share is important in cyclical industries and not important ... Read Answer >>
  5. How does correlation affect the stock market?

    Learn about the role correlation plays in prudent stock market investing, and how the correlation coefficient is used to ... Read Answer >>
  6. What economic indicators are important to monitor when investing in the electronics ...

    Learn about what economic indicators are best to examine when investing in the electronics sectors. This group is very leveraged ... Read Answer >>
Related Articles
  1. Investing

    5 Unique Pure Beta ETNs to Consider (SBV, BCM)

    Learn about five unique Barclays Bank iPath Pure Beta exchange-traded notes (ETNs) and whether these ETNs are suitable for your investment objectives.
  2. Markets

    Market Economy

    In a market economy, economic decisions and prices are determined by market forces rather than by central planning.
  3. Markets

    Companies Affected Most by Low Oil Prices

    Low oil prices have affected many companies. Some consumers and producers who rely on oil as a key input benefit, while others do not.
  4. Managing Wealth

    Value or Growth Stocks: Which is Best?

    The answer to the age-old growth versus value debate depends on a number of factors. Here's what to consider.
  5. Markets

    Single Play E&P Operators

    There are several E&P companies that are putting the majority of capital budgets into single oil and gas plays.
  6. Investing

    The Importance Of Corporate Transparency

    Clear and honest financial statements not only reflect value, they also help ensure it.
  7. Trading

    Surviving Bear Country

    Stay calm, play dead and keep your eyes open for attractive valuations.
  8. ETFs & Mutual Funds

    Best Ways To Find Profitable Intraday Trades

    This checklist can uncover patterns and setups that generate profitable short-term trading opportunities.
  9. Managing Wealth

    Misconceptions About Past Performance And Future Returns

    Relying on an investment's past performance to guide your investment decisions is a losing strategy. Find out why.
  10. Investing

    Growth Investing: 3 Tips to Consider

    Learn the basics of growth investing, and discover three tips for avoiding the risk of losing money while employing a growth investment strategy.
RELATED TERMS
  1. Pure Play

    A publicly traded company that is focused on only one industry ...
  2. Pure Risk

    A category of risk in which loss is the only possible outcome; ...
  3. Speculative Risk

    A category of risk that, when undertaken, results in an uncertain ...
  4. Electronic Retailing - E-tailing

    The sale of goods and services through the Internet. Electronic ...
  5. Asset Play

    An incorrectly-valued stock that is attractive because its combined ...
  6. Pure Discount Instrument

    A type of security that pays no income until maturity; upon expiration, ...
Hot Definitions
  1. Sell-Off

    The rapid selling of securities, such as stocks, bonds and commodities. The increase in supply leads to a decline in the ...
  2. Brazil, Russia, India And China - BRIC

    An acronym for the economies of Brazil, Russia, India and China combined. It has been speculated that by 2050 these four ...
  3. Brexit

    The Brexit, an abbreviation of "British exit" that mirrors the term Grexit, refers to the possibility of Britain's withdrawal ...
  4. Underweight

    1. A situation where a portfolio does not hold a sufficient amount of a particular security when compared to the security's ...
  5. Russell 3000 Index

    A market capitalization weighted equity index maintained by the Russell Investment Group that seeks to be a benchmark of ...
  6. Enterprise Value (EV)

    A measure of a company's value, often used as an alternative to straightforward market capitalization. Enterprise value is ...
Trading Center