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Chapter 16. Value Investing: The Process > Step 4: Industry Analysis

Step 4: Industry Analysis

Value investing, unlike growth, is not about picking the strongest player in hot industries. Instead, value analysis focuses primarily on the candidate, rather than its industry. Even so, there are aspects of the industry analysis that require the attention of value investors.

Industry Growth

According to MSN Money's Earnings Growth Rate report, ATI Technology is in the graphics subsector of the computer industry. Analysts had forecast 30 percent annual earnings growth for the industry in mid-March 2001. Discounting the forecast industry earnings growth by 30 percent yielded 21 percent expected average annual sales growth. High forecast industry growth implies high expectations, the bane of value investing. Nevertheless, high forecast industry growth is not a disqualifying factor. The only disqualifying industry growth factor is too slow growth, namely less than 3 percent.


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