brainbytes-dev Sector-Specific Analysis
Sector classification, key metrics by industry, industry life cycle, competitive dynamics — frameworks for sector-level equity analysis.
When to Activate
- Analyzing a company within its sector context
- Identifying sector-specific KPIs and valuation metrics
- Comparing companies across an industry peer group
- Assessing industry structure and competitive dynamics
- Evaluating where an industry sits in its life cycle
- Porter's Five Forces analysis for a specific sector
- Screening for sector investment opportunities
Core Concepts
Sector Classification (GICS)
The Global Industry Classification Standard (GICS) provides a four-tier hierarchy:
- 11 Sectors > 25 Industry Groups > 74 Industries > 163 Sub-Industries
| Sector | Key Characteristics | Primary Valuation |
|---|---|---|
| Energy | Commodity-driven, cyclical, capital-intensive | EV/EBITDA, P/CF, NAV |
| Materials | Commodity exposure, cyclical | EV/EBITDA, P/B |
| Industrials | Economic cycle sensitive, diverse | P/E, EV/EBITDA |
| Consumer Discretionary | Consumer spending sensitive | P/E, EV/EBITDA, EV/Sales |
| Consumer Staples | Defensive, stable demand | P/E, Dividend Yield |
| Health Care | Regulatory risk, pipeline value | P/E, EV/Sales (biotech), DCF |
| Financials | Spread income, regulatory capital | P/E, P/B, P/TBV, Dividend Yield |
| Information Technology | Growth-oriented, scalable | EV/Sales, EV/EBITDA, P/E (if profitable) |
| Communication Services | Mix of growth and value | EV/EBITDA, P/E, EV/Subscriber |
| Utilities | Regulated returns, yield play | P/E, Dividend Yield, EV/RAB |
| Real Estate | Asset-based, income-generating | P/FFO, P/NAV, Cap Rate, Dividend Yield |
Sector-Specific Key Metrics
Banking:
| Metric | Formula | Benchmark |
|---|---|---|
| NIM (Net Interest Margin) | Net interest income / Avg earning assets | 1.0-3.0% (varies by region) |
| CET1 Ratio | CET1 capital / RWA | >12% comfortable |
| NPL Ratio | Non-performing loans / Total loans | <2% is healthy |
| Cost-to-Income | Operating expenses / Operating income | <50% excellent, <60% good |
| ROTE | Net income / Avg tangible equity | >10% value-creating |
| LDR (Loan-to-Deposit) | Gross loans / Customer deposits | 80-100% typical |
| Provision coverage | Loan loss provisions / NPLs | >70% adequate |
Technology / SaaS:
| Metric | Formula | Benchmark |
|---|---|---|
| ARR (Annual Recurring Revenue) | MRR x 12 | Growth rate > 30% is strong |
| NRR (Net Revenue Retention) | (Beginning ARR + expansion - contraction - churn) / Beginning ARR | >120% excellent, >100% good |
| DAU/MAU | Daily active / Monthly active users | >50% high engagement |
| CAC (Customer Acquisition Cost) | Sales & marketing / New customers | Payback < 18 months |
| LTV/CAC | Customer lifetime value / CAC | >3x healthy |
| Rule of 40 | Revenue growth % + EBITDA margin % | >40% is strong |
| Gross margin | Gross profit / Revenue | >70% for SaaS |
| Magic Number | Net new ARR / Prior quarter S&M spend | >1.0 efficient |
Real Estate / REITs:
| Metric | Formula | Benchmark |
|---|---|---|
| FFO (Funds From Operations) | Net income + D&A - gains on sales | Primary earnings metric |
| AFFO (Adjusted FFO) | FFO - maintenance capex - straight-line rent adj. | Cash flow proxy |
| NAV (Net Asset Value) | Market value of properties - debt | Intrinsic value |
| Cap Rate | NOI / Property value | 4-8% varies by property type |
| Occupancy Rate | Leased sqm / Total leasable sqm | >90% healthy |
| WALE | Weighted average lease expiry | >5 years = stability |
| LTV (Loan-to-Value) | Debt / Property value | <50% conservative |
Insurance:
| Metric | Formula | Benchmark |
|---|---|---|
| Combined Ratio | Loss ratio + Expense ratio | <100% = underwriting profit |
| Loss Ratio | Claims incurred / Premiums earned | Varies by line |
| Expense Ratio | Operating expenses / Premiums written | <30% efficient |
| Investment yield | Investment income / Avg invested assets | Depends on rate environment |
| Solvency II ratio | Own funds / SCR | >150% comfortable |
| Reserve adequacy | Actual claims / Estimated reserves | ~100% adequate |
Retail:
| Metric | Formula | Benchmark |
|---|---|---|
| SSSG (Same-Store Sales Growth) | YoY sales growth for stores open >12 months | >3% strong |
| Sales per sqm/sqft | Revenue / Selling area | Varies by format |
| Inventory turns | COGS / Avg inventory | Higher = more efficient |
| Gross margin | Gross profit / Revenue | Varies widely (25-60%) |
| GMROI | Gross profit / Avg inventory | >2.0x target |
| Conversion rate | Transactions / Foot traffic | Higher = better |
| Basket size | Revenue / Transactions | Track trend direction |
Industry Life Cycle
Revenue Growth
^
| Growth
| / \
| / Maturity
| / Shakeout \
Introduction | / \____ Decline
___ | / \
/ \ | / \
/ \__________| / \
────────────────────────────────────────────────> Time
| Stage | Growth | Margins | Competition | Investment Focus |
|---|---|---|---|---|
| Introduction | Low/negative | Negative (investment phase) | Few players, high barriers | Product development, market creation |
| Growth | High (>20%) | Expanding | New entrants, increasing | Market share, capacity |
| Shakeout | Slowing | Pressure | Consolidation, exits | Efficiency, scale |
| Maturity | Low (GDP-like) | Stable/optimized | Oligopoly, stable | Cash return, maintenance |
| Decline | Negative | Eroding | Exits, substitution | Harvest, restructure |
Porter's Five Forces by Sector
Framework application:
- Threat of new entrants: Capital requirements, economies of scale, brand loyalty, regulatory barriers, network effects, switching costs
- Bargaining power of suppliers: Supplier concentration, input differentiation, switching costs, forward integration threat
- Bargaining power of buyers: Buyer concentration, price sensitivity, product differentiation, backward integration threat
- Threat of substitutes: Relative price/performance, switching costs, buyer propensity to substitute
- Rivalry among existing competitors: Number and size of competitors, industry growth, product differentiation, exit barriers, fixed costs
Sector examples:
| Force | Banking (High barriers) | SaaS (Network effects) | Retail Grocery (Low margins) |
|---|---|---|---|
| New entrants | Low (regulation, capital) | Medium (low capital, but network effects) | Medium (logistics, scale) |
| Supplier power | Low (depositors fragmented) | Low-Medium (cloud infra oligopoly) | Medium (branded goods) |
| Buyer power | Medium (switching costs) | Low-Medium (high switching costs) | High (price transparency) |
| Substitutes | Medium (fintech, BNPL) | Medium (alternative solutions) | Low (essential goods) |
| Rivalry | High (commoditized products) | High (winner-take-most) | Very high (price wars) |
Methodology
Sector Analysis Process
- Define the sector boundary: GICS classification, value chain positioning, adjacent sectors
- Map the industry structure: Key players, market shares, concentration (HHI), value chain
- Identify key drivers: Demand drivers (GDP, demographics, technology), supply dynamics (capacity, barriers)
- Assess competitive dynamics: Porter's Five Forces, competitive advantages by player
- Determine life cycle stage: Growth trajectory, margin trends, consolidation signals
- Select sector-appropriate metrics: Use metrics table above for the relevant sector
- Build peer comparison: Rank peers on key metrics, identify outliers and reasons
- Identify investment themes: Secular trends, disruption risks, regulatory changes
- Valuation framework: Apply sector-appropriate valuation multiples, cross-check with DCF
Peer Comparison
- Select 5-10 comparable companies (similar size, geography, business model)
- Standardize financials (calendar year alignment, currency, accounting policies)
- Calculate key metrics for all peers
- Rank and identify quartiles
- Analyze outliers: Why is company X above/below the peer median?
- Assess premium/discount justification
Templates
Sector Scorecard
Sector: _______________ Date: ___________
Industry Structure:
Market size (TAM): € ____________
Growth rate (5Y CAGR): ____________%
Top-5 market share: ____________%
HHI (concentration): ____________
Life cycle stage: [ ] Introduction [ ] Growth [ ] Maturity [ ] Decline
Porter's Five Forces (1=Low, 5=High):
New entrants: [_]
Supplier power: [_]
Buyer power: [_]
Substitutes: [_]
Rivalry: [_]
Overall intensity: [_]
Key sector metrics:
Metric 1 (________): Peer median ____ Range ____-____
Metric 2 (________): Peer median ____ Range ____-____
Metric 3 (________): Peer median ____ Range ____-____
Peer Comparison Table
Company A Company B Company C Median Target Co.
Market cap (EURm) _______ _______ _______ _______ _______
Revenue growth ____% ____% ____% ____% ____%
Gross margin ____% ____% ____% ____% ____%
EBIT margin ____% ____% ____% ____% ____%
ROCE ____% ____% ____% ____% ____%
Sector metric 1 _____ _____ _____ _____ _____
Sector metric 2 _____ _____ _____ _____ _____
EV/EBITDA _____x _____x _____x _____x _____x
P/E _____x _____x _____x _____x _____x
Dividend yield ____% ____% ____% ____% ____%
Quality Gate
- Sector boundary is clearly defined (GICS or custom definition)
- Industry structure is mapped (players, market shares, value chain)
- Key demand and supply drivers are identified
- Porter's Five Forces analysis is completed with sector-specific evidence
- Life cycle stage is assessed with supporting data
- Sector-appropriate metrics are selected (not generic ratios)
- Peer group is relevant (comparable size, geography, business model)
- Peer metrics are standardized for comparability
- Investment themes are identified with catalysts and risks
- Sector valuation approach matches industry convention