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.

BREAKING DOWN 'Product Portfolio'

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. A 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 over 62% of total company sales as of June 2018, meaning its performance is more meaningful than that of the laptops, the iPad or the App Store.

RELATED TERMS
  1. Market Portfolio

    A market portfolio is a theoretical, diversified group of investments, ...
  2. Investment Product

    An investment product is a product offered to investors based ...
  3. Inefficient Portfolio

    An inefficient portfolio is one that delivers an expected return ...
  4. Portfolio Management

    Portfolio Management involves deciding investment mix and policy, ...
  5. Geographical Diversification

    Geographical diversification is the practice of diversifying ...
  6. Product Line

    A product line is a group of related products manufactured by ...
Related Articles
  1. Investing

    The Workings of Equity Portfolio Management

    Portfolio management is a necessity, not an afterthought, in achieving analytical efficiency.
  2. Investing

    5 Popular Portfolio Types

    Learn how to build these five types of portfolios to increase your investing confidence and give you financial control.
  3. Managing Wealth

    Achieve Optimal Asset Allocation

    Minimize risk while maximizing return with the right mix of securities and achieve your optimal asset allocation.
  4. Personal Finance

    What Exactly Does A Portfolio Analyst Do?

    Portfolio analysts have the exciting role of working between the investment team layers and they touch various aspects of an investment organization.
  5. Investing

    Why Your Portfolio Isn't Up as Much as the Market

    Contrary to popular belief, the S&P 500 Index is often a poor indicator of a balanced portfolio’s performance.
  6. Retirement

    How To Create a Retirement Portfolio Strategy

    Properly planned retirement portfolio strategies are needed for maximum profit, in this article find out the rules of retirement income planning.
  7. Investing

    Understanding The History Of The Modern Portfolio

    Learn the history of how a collection of income-producing assets known as the modern investment portfolio became so ingrained in our financial world.
  8. Investing

    How to Build Your Optimally-Balanced Portfolio

    How do you build an optimally balanced portfolio? A lot depends on your appetite for risk, and your understanding of rebalancing.
  9. Financial Advisor

    How To Pump Up Your Portfolio With ETFs

    These funds trade like stocks, provide diversification, reduce risk and increase returns.
RELATED FAQS
  1. 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 >>
Trading Center