A form of fundamental analysis involving the process of making investment decisions based on the different stages an industry is at during a given point in time. The type of position taken will depend on firm specific characteristics, as well as where the industry is at in its life cycle.
Under the production and market introduction phases, revenues and earnings are likely to be very low, which makes investments during these phases more speculative in nature. Revenues and earnings are likely to be low because there is little demand for the product, or the product is not completed. Expenses are likely to be very large during these phases as a company or industry spends a lot on marketing and research.
Through the growth phase, revenues and margins are likely to be on the rise due to an increase in demand for a product and the pricing power the firm has due to a small number of competitors. Stock prices are likely to rise during this phase.
During the maturity and stability phase, revenues and margins are likely to decline due to lower sales demand and more competition. Stock prices are likely to decline during these phases.