The technology industry is prone to a situation where one dominates and the winner takes all, but its dominance cycle and position are also vulnerable to subversion by new technologies and new models, and stock prices are naturally volatile. The stocks of technology companies may seem “too expensive” or “too volatile,” but they are always rising, and that makes them the perfect shares to invest in. Here are some tips to invest in technology companies.
The Trend Is More Important Than Valuation
If we look through the history of American technology companies, we will find some interesting phenomena: the stock prices of those leading companies are always rising rapidly in the process of constantly killing competitors. When the industry development trend is clear, and the competitive landscape is stable, corporate profitability increases significantly, and the stock price and valuation have shown great improvement. For example, ten years after Microsoft launched Windows 3.0, all its competitors have been killed one after another, and the stock price has risen for ten consecutive years.
Observe The Rate Of Profit
If the rate of profit growth is greater than the rate of decline in valuation, the stock price will appear to rise, such as Apple and Google. If the rate of profit growth is comparable to the rate of decline in valuation, the stock price will appear to be consolidating, such as Microsoft and Cisco.
If you find that a certain technology stock is cheap, then you should be wary that its journey may be over. However, if you find a cheap stock price, it may be because that company is new, but innovative. You can find these types of companies at an Australian innovation festival. These are the best companies to invest in. The current price should not be a reason to buy technology stocks; future potential is more important than the current price.
How To Identify Trends
When a new product enters the market in the early stage, the penetration rate is low, and market competition is often insufficient. The sales and profits of various manufacturers would increase alongside the increase in industry penetration. At this stage, it is often difficult to identify leading companies in advance because demand grows rapidly, technology changes greatly, the industry competition pattern is relatively scattered, and entry barriers are low. It’s a good idea to check out some tech conferences in Melbourne to learn about new companies worth investing in. Leading companies have eliminated several competitors, as well as prevented new competitors, which caused the industry entry barriers to be raised, and the competitive landscape stabilized.
The first stage is to observe the trend and take the risk, the second stage depends on the competition to win, and the third stage depends on profit growth. However, the whole process will show a state of declining valuation due to the gradual details of industry development trends and space.
A company’s competitive advantage and sustainability determine its industry status and profitability. Therefore, the competitive landscape is the basis for identifying industry opportunities and evolutionary trends, and competitive advantage is the key.
Investing is a Long-Term Commitment
Innovation is the driving force for the growth of technology companies. Whether it is micro-innovation under the existing framework or subversive innovation, it will not only make a great company, but also create a great industry.
After all, the investment must be implemented in individual stocks. We can only see the trend more easily if we are as close as possible to the truth. This requires us to have a long-term understanding of the industry and a continuous track of the company.