Concept Company

DEFINITION of 'Concept Company'

A firm whose stock price is based on a new trend or fad and not on fundamentals like income and assets. Concept companies are often based on new technology that seems potentially profitable, but has yet to prove itself in the market. Many dot-com companies could be considered concept companies.

BREAKING DOWN 'Concept Company'

The belief that a new technology or trend will take off, or a belief in the vision and abilities of the company's executives, are typical reasons for investing in a concept company. Two factors can make it difficult to profit from concept company stocks, however. First, you have to purchase the stock when it's cheap, which means spotting a potential new trend before everyone else sees it and drives the stock price up. Second, the underlying company eventually has to prove itself with actual profits, or the stock's value will plummet.