Valuation in Context

Availability of Projects

1

Firms operating in different sectors have different expected future returns as they a different number of available projects to invest in. Some sectors have a lot of new projects, while others don’t.

2

The extent to which a sector has a lot of available project to invest or not, has a significant impact on potential stock market returns. This is called industry-specific value as it is determined by the industry.

3

For example, a technology company may be valued higher than a pharmaceutical company because the projects that the firm are pursuing, have higher expected cash flows.  

4

So, not only is it about the number of projects that are available to an industry, but it is also about the amount of money that can be made from those projects.

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