Cyclical business
Also called: cyclical stock, cyclicals, cyclical company
A business whose demand, prices and profits rise and fall with the economy or its industry's supply cycle, such as metals, cement or autos.
Cyclical profits can swing from large profits to losses. At the top of a cycle the P/E ratio looks low because profit is temporarily high, so such companies are best judged on average profit across a whole cycle and on whether they can survive the bad years.
Example
A cement company earning ₹900 crore at the peak and nothing in the slump might average about ₹320 crore across the cycle.
Learn more in these lessons
- Cyclical and capital-intensive businessesWhy do profits in cyclical industries swing so much, and how should you judge them?
- Why sectors are valued differentlyWhy do some sectors trade at much higher valuations than others?
- When valuation ratios misleadWhen do valuation ratios give the wrong answer?
- Commodity businessesHow do you analyse a company that sells a commodity?
- Crude oil and commodity pricesWhy do oil prices matter so much for India and its stock market?
- How economic conditions affect industriesWhy does the same economic news lift some sectors and sink others?
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