What is a Mature Industry
As can be seen above, the third phase is the mature industry phase.
BREAKING DOWN Mature Industry
A mature industry may be at its peak or just past it. While earnings may be stable, growth prospects are few and far between.
Mature industries are characterized by low price to earnings ratios (P/E) and high dividend yields.
Why a Mature Industry May See Little Growth
With a mature industry, revenue and earnings can continue to increase. Companies from such industries are not expected to grow at the same pace that may have characterized the earlier phases of development. This may be due to the industry already approaching the point of market saturation in terms of reaching available customers.
For example, the makers of breakfast cereal and related grocery products could be considered to be part of a mature industry. Such companies have achieved a level of market penetration that may shift marginally from time to time, but they have largely reached the limits of the demographics they want to reach. Each company may have a footprint of customers it has connected with though there may be some gaps in coverage. As a collective industry, such companies have the capacity to cover the gamut of available clientele.
Mature industries can pose a challenge for investors and management of the companies in these sectors. While there is an expectation of stability that comes with a mature industry, a desire to see future earnings growth persists. In order for companies in mature industries to realize growth that might appease investors, significant effort must be made. This can include researching and developing new products that change the paradigm of the industry. It might consist of selling off parts of the business or acquiring assets from either smaller, more innovative companies, or merging with a peer company to further expand the company’s customer base and market presence.
Mature industries can be seen as having plateaued in some regards and may need to develop new innovations to remain relevant with their customers. It may be inevitable for mature industries to be superseded and made obsolete by the growth of a new business sector.
For example, the film photography was a mature and stable industry given there were few true alternatives to the medium until digital photography reached a stage of development that could consistently reproduce, at a comparable cost, the clarity of film photos. While there are nuanced reasons why film photography remains popular with some niche users, the consumer market largely shifted to using digital.