What is a 'Product Portfolio'

A product portfolio is the collection of all the products or services offered by a company. Product portfolio analysis can provide nuanced views on stock type, company growth prospects, profit margin drivers, income contributions, market leadership and operational risk. This is essential for investors conducting equity research by investors or analysts supporting internal corporate financial planning.

!--break--Product portfolio is an important element of financial analysis, because it provides context and granularity. Investors can distinguish between long-term value stocks and short term growth opportunities. Portfolio analysis also allows investors to nail down specific drivers of financial performance, which is necessary for effective modeling.

Product Portfolio and Mature Companies

Mature companies often have diversified product portfolios. Internal product development and acquisitions contribute to portfolio size over time, and larger enterprises have the infrastructure to support the marketing of a broader offering. Geographic expansion can also augment a product portfolio, with products varying in popularity among cities or countries. Diversification tends to limit growth potential while reducing downside risk, so mature firms tend to exhibit less operational volatility. This reduces the amount of speculation in equity valuation. The Proctor & Gamble Company is an example of such a company, with 65 different, well-known personal and household goods brands including Bounty, Crest and Tide.

Product Portfolio and Growth Companies

Younger firms with small portfolios are more exposed to the performance of their main products, which can lead to greater operational volatility. More risk and higher growth potential lead to more speculative equity valuation. The various components in a product portfolio often have disparate margins because they have different price dynamics, production costs or marketing demands.

Portfolio and Profitability

The various components of a portfolio also face different market dynamics and can contribute inconsistently to the bottom line. A firm's market share can vary among the parts of its offering, with more dominant products generally requiring different strategies than high-growth portions of the portfolio that are managed to gain share. Shifting sales mix can have significant consequences for the bottom line when margins vary across the portfolio.

Companies often rebrand or restructure underperforming and unprofitable products, a strategy that requires portfolio analysis. Products that contribute the most income are generally the most important for short-term financial analysis, and alterations to these flagship elements of the portfolio impact performance more substantially. Apple, Inc., is known for offering several electronic devices, but the iPhone is the most important driver of top line and bottom line results. The smartphone contributed nearly 67% of total company sales as of July 2016, meaning its performance is more meaningful than that of the laptops, the iPad or the App Store.

BREAKING DOWN 'Product Portfolio'

RELATED TERMS
  1. Trading Effect

    A measure of performance that examines the difference in returns ...
  2. Granular Portfolio

    A type of portfolio that is well diversified across a wide variety ...
  3. Portfolio

    A grouping of financial assets such as stocks, bonds and cash ...
  4. Capital Growth Strategy

    An asset allocation strategy that seeks to maximize capital appreciation, ...
  5. Portfolio Return

    The monetary return experienced by a holder of a portfolio. Portfolio ...
  6. International Portfolio

    A grouping of investment assets that focuses on securities from ...
Related Articles
  1. Financial Advisor

    The Workings Of Equity Portfolio Management

    Achieve analytical efficiency by applying your evaluation to a key set of stocks.
  2. Financial Advisor

    5 Popular Portfolio Types

    Learning how to build these portfolios will increase your investing confidence and give you financial control.
  3. Managing Wealth

    Achieving Optimal Asset Allocation

    Minimizing risk while maximizing return with the right mix of securities is the key to achieving your optimal asset allocation.
  4. Financial Advisor

    Preparing For A Career As A Portfolio Manager

    Find out what it takes to win a spot in one of the most coveted financial careers.
  5. Managing Wealth

    Avoid Future Shock By Protecting Your Portfolio With Futures

    Worried about protecting your portfolio of diversified stocks and assets? Using futures with correct strategies can help.
  6. Financial Advisor

    What is Portfolio Management?

    Portfolio management is the act of maximizing the return on a portfolio. This is done with trading decisions made for the marketable securities in that portfolio. A portfolio manager, or a team ...
  7. Financial Advisor

    Concentrated Vs. Diversified Portfolios: Comparing the Pros and Cons

    Examine the relative advantages and disadvantages of utilizing either a concentrated or a diversified investment portfolio strategy.
  8. Investing

    Major Blunders In Portfolio Construction

    Do you have the best mix of investments? Find out how to make sure.
  9. Investing

    In Praise Of Portfolio Simplicity

    Find out how you can streamline your investments for greater returns.
  10. Investing

    5 Popular Portfolio Types

    One of the best ways to mitigate risk and realize strong returns is by diversifying your investment portfolio. This can be accomplished in several ways.
RELATED FAQS
  1. How is portfolio variance reduced in Modern Portfolio Theory?

    Learn about modern portfolio theory, specifically what it asserts about asset allocation and managing portfolio risk through ... Read Answer >>
  2. The BEST definition of a benchmark portfolio is:

    The BEST definition of a benchmark portfolio is: a) A preset list of securities to be used to compare the performance of ... Read Answer >>
  3. What will happen to my U.S.-based stock portfolio if the U.S. dollar substantially ...

    The effect of a significant depreciation in the value of the U.S. dollar on the value of an investor's U.S-based portfolio ... Read Answer >>
  4. What is the difference between portfolio management and financial planning?

    Understand the difference between financial planning and portfolio management, and learn which financial professionals can ... Read Answer >>
  5. Why is risk return tradeoff important in designing a portfolio?

    Learn how the risk return tradeoff is used in the construction of portfolios, and how modern portfolio theory seeks to diversify ... Read Answer >>
  6. What does the end of the quarter mean for portfolio management?

    Take a deeper look at why the end of a financial quarter, and all of its accompanying reports, is a significant event for ... Read Answer >>
Hot Definitions
  1. IRS Publication 970

    A document published by the Internal Revenue Service (IRS) that provides information on tax benefits available to students ...
  2. Federal Direct Loan Program

    A program that provides low-interest loans to postsecondary students and their parents. The William D. Ford Federal Direct ...
  3. Cash Flow

    The net amount of cash and cash-equivalents moving into and out of a business. Positive cash flow indicates that a company's ...
  4. PLUS Loan

    A low-cost student loan offered to parents of students currently enrolled in post-secondary education. With a PLUS Loan, ...
  5. Graduate Record Examination - GRE

    A standardized exam used to measure one's aptitude for abstract thinking in the areas of analytical writing, mathematics ...
  6. Graduate Management Admission Test - GMAT

    A standardized test intended to measure a test taker's aptitude in mathematics and the English language. The GMAT is most ...
Trading Center