I once had a management professor give one bit of advice to people just entering the workforce. When choosing an industry to work in, it is better to choose a fast-growing industry rather than a slow-growth or declining industry.
If one has a choice, it is helpful to be in an industry forecast to show lots of growth, which also often correlates with other valuation ratios, such as enterprise value/revenue.
Here is a ranking of industries made by Stern School at New York University researchers and updated in January 2023. Looking at EV/Sales ratios, one can see that valuation ratios can routinely vary by an order of magnitude.
Financial services and real estate investment trusts routinely are valued at 10 to 20 times specialty retailers and as much as 63 times higher than grocers. Compared to fixed network communications services, financial services are an order of magnitude more highly valued.
IndustryValuation Enterprise Value Compared to Sales Ratio |
Industry Name | Number of firms | Price/Sales | Net Margin | EV/Sales | Pre-tax Operating Margin |
Financial Services (Non-bank and Insurance) | 223 | 2.18 | 26.32% | 23.49 | 15.88% |
R.E.I.T. | 223 | 6.35 | 23.77% | 11.06 | 23.20% |
Utility (Water) | 16 | 6.43 | 25.12% | 9.18 | 29.38% |
Green & Renewable Energy | 19 | 3.68 | 17.77% | 7.79 | 24.48% |
Software (System & Application) | 390 | 7.14 | 14.61% | 7.59 | 21.90% |
Software (Internet) | 33 | 5.57 | -19.07% | 6.33 | -5.48% |
Transportation (Railroads) | 4 | 5.04 | 27.65% | 6.32 | 39.86% |
Information Services | 73 | 5.77 | 16.62% | 6.26 | 24.21% |
Drugs (Biotechnology) | 598 | 5.78 | 0.65% | 6.18 | 11.87% |
Healthcare Information and Technology | 138 | 4.81 | -0.33% | 5.33 | 17.00% |
Investments & Asset Management | 600 | 4.15 | 24.93% | 5.16 | 18.15% |
Healthcare Products | 254 | 4.73 | 7.00% | 5.15 | 15.13% |
Tobacco | 15 | 4.19 | 23.46% | 5.05 | 43.97% |
Semiconductor | 68 | 4.63 | 22.74% | 4.98 | 25.44% |
Drugs (Pharmaceutical) | 281 | 4.38 | 18.35% | 4.85 | 27.37% |
Beverage (Soft) | 31 | 4.16 | 14.60% | 4.67 | 19.14% |
Bank (Money Center) | 7 | 2.55 | 26.96% | 4.49 | 0.10% |
Brokerage & Investment Banking | 30 | 2.14 | 16.01% | 4.46 | 0.31% |
Banks (Regional) | 557 | 3.2 | 30.31% | 4.34 | -0.10% |
Utility (General) | 15 | 2.47 | 12.68% | 4.28 | 18.03% |
Hotel/Gaming | 69 | 2.75 | 1.10% | 4.2 | 4.23% |
Beverage (Alcoholic) | 23 | 3.38 | 5.76% | 4.07 | 20.17% |
Restaurant/Dining | 70 | 3.16 | 9.28% | 4.07 | 12.80% |
Real Estate (General/Diversified) | 12 | 3.14 | 12.67% | 4.02 | 18.60% |
Power | 48 | 2.14 | 9.17% | 3.75 | 15.67% |
Computers/Peripherals | 42 | 3.41 | 16.68% | 3.67 | 21.43% |
Semiconductor Equip | 30 | 3.43 | 22.27% | 3.66 | 27.44% |
Household Products | 127 | 3.23 | 11.25% | 3.65 | 17.12% |
Software (Entertainment) | 91 | 3.54 | 20.91% | 3.59 | 25.65% |
Telecom Equipment | 79 | 3.31 | 13.29% | 3.56 | 18.63% |
Precious Metals | 74 | 3.3 | 7.18% | 3.55 | 10.10% |
Shoe | 13 | 3.06 | 11.17% | 3.22 | 12.83% |
Telecom (Wireless) | 16 | 1.98 | 2.54% | 3.18 | 12.37% |
Entertainment | 110 | 2.47 | 0.90% | 3.06 | 7.44% |
Environmental & Waste Services | 62 | 2.44 | 7.29% | 3.03 | 12.85% |
Real Estate (Development) | 18 | 1.42 | 15.04% | 2.81 | 17.48% |
Total Market | 7165 | 1.95 | 8.89% | 2.8 | 11.60% |
Electrical Equipment | 110 | 2.38 | 7.31% | 2.77 | 10.25% |
Machinery | 116 | 2.28 | 8.51% | 2.67 | 14.00% |
Oil/Gas Distribution | 23 | 1.54 | 2.08% | 2.6 | 10.82% |
Aerospace/Defense | 77 | 2.1 | 4.05% | 2.55 | 8.68% |
Diversified | 23 | 2.16 | 0.98% | 2.5 | 3.59% |
Chemical (Specialty) | 76 | 2.05 | 8.07% | 2.48 | 14.80% |
Cable TV | 10 | 1.19 | 7.91% | 2.43 | 19.52% |
Total Market (without financials) | 5649 | 1.93 | 7.77% | 2.35 | 12.03% |
Telecom. Services | 49 | 1.01 | 12.81% | 2.18 | 19.95% |
Insurance (General) | 21 | 1.7 | 15.21% | 2.16 | 21.86% |
Construction Supplies | 49 | 1.72 | 8.23% | 2.15 | 11.16% |
Oil/Gas (Production and Exploration) | 174 | 1.83 | 26.01% | 2.12 | 35.68% |
Food Processing | 92 | 1.66 | 7.10% | 2.1 | 11.94% |
Metals & Mining | 68 | 1.86 | 9.66% | 2.06 | 22.84% |
Business & Consumer Services | 164 | 1.69 | 4.92% | 2.05 | 9.22% |
Advertising | 58 | 1.49 | 3.79% | 1.96 | 11.11% |
Retail (Building Supply) | 15 | 1.64 | 8.67% | 1.96 | 13.81% |
Electronics (General) | 138 | 1.73 | 6.32% | 1.94 | 9.83% |
Retail (Online) | 63 | 1.63 | 0.64% | 1.87 | 1.84% |
Education | 33 | 1.57 | 2.92% | 1.85 | 5.16% |
Auto and Truck | 31 | 1.32 | 5.02% | 1.81 | 6.49% |
Recreation | 57 | 1.22 | 1.30% | 1.77 | 8.31% |
Hospitals/Healthcare Facilities | 34 | 0.85 | 5.31% | 1.57 | 11.62% |
Retail (Distributors) | 69 | 1.06 | 7.30% | 1.45 | 11.90% |
Trucking | 35 | 1.07 | 1.29% | 1.45 | 9.18% |
Coal & Related Energy | 19 | 1.35 | 20.44% | 1.43 | 22.17% |
Insurance (Prop/Cas.) | 51 | 1.21 | 4.05% | 1.39 | 6.49% |
Oil/Gas (Integrated) | 4 | 1.31 | 15.17% | 1.39 | 17.46% |
Building Materials | 45 | 1.1 | 10.30% | 1.36 | 13.94% |
Broadcasting | 26 | 0.6 | 11.90% | 1.33 | 14.75% |
Insurance (Life) | 27 | 0.83 | 6.07% | 1.33 | 8.39% |
Packaging & Container | 25 | 0.79 | 6.06% | 1.25 | 9.63% |
Farming/Agriculture | 39 | 0.94 | 5.66% | 1.22 | 7.78% |
Computer Services | 80 | 0.93 | 2.53% | 1.17 | 6.89% |
Apparel | 39 | 0.81 | 5.07% | 1.16 | 11.11% |
Publishing & Newspapers | 20 | 0.88 | 2.82% | 1.16 | 7.75% |
Engineering/Construction | 43 | 0.87 | 2.16% | 1.08 | 4.69% |
Transportation | 18 | 0.89 | 6.99% | 1.08 | 9.38% |
Shipbuilding & Marine | 8 | 0.82 | 21.55% | 1.07 | 26.33% |
Air Transport | 21 | 0.42 | -1.71% | 1.02 | 2.08% |
Real Estate (Operations and Services) | 60 | 0.52 | -0.76% | 1 | 0.50% |
Retail (Special Lines) | 78 | 0.72 | 3.86% | 0.97 | 5.74% |
Office Equipment & Services | 16 | 0.6 | 2.36% | 0.93 | 6.26% |
Chemical (Diversified) | 4 | 0.64 | 13.16% | 0.91 | 13.56% |
Retail (Automotive) | 30 | 0.59 | 4.07% | 0.91 | 5.73% |
Chemical (Basic) | 38 | 0.63 | 9.70% | 0.89 | 13.14% |
Furn/Home Furnishings | 32 | 0.6 | 2.03% | 0.88 | 7.89% |
Homebuilding | 32 | 0.71 | 13.98% | 0.85 | 18.79% |
Auto Parts | 37 | 0.62 | 2.16% | 0.82 | 5.19% |
Retail (General) | 15 | 0.7 | 2.35% | 0.81 | 4.12% |
Electronics (Consumer and Office) | 16 | 0.78 | 0.54% | 0.78 | 2.11% |
Paper/Forest Products | 7 | 0.58 | 10.23% | 0.77 | 18.59% |
Healthcare Support Services | 131 | 0.61 | 2.01% | 0.69 | 4.00% |
Steel | 28 | 0.58 | 14.70% | 0.68 | 19.89% |
Reinsurance | 1 | 0.58 | 3.54% | 0.63 | 4.64% |
Oilfield Svcs/Equip. | 101 | 0.47 | 5.25% | 0.58 | 7.37% |
Rubber and Tires | 3 | 0.14 | 4.21% | 0.55 | 5.84% |
Food Wholesalers | 14 | 0.29 | 1.09% | 0.41 | 2.10% |
Retail (Grocery and Food) | 13 | 0.24 | 1.96% | 0.37 | 2.92% |
source: https://pages.stern.nyu.edu/~adamodar/pc/datasets/psdata.xls |
The point is that, when one has a choice, choose to enter an industry with higher growth rates or higher valuation ratios or both.
The same sort of relationship also holds for managerial success, once those choices have been made. It is easier to be a “hero” when one has worked in a fast-growing, more-profitable industry to begin with. The same amount of effort and talent is likely to produce consistently higher outcomes compared to the same effort and talent expended in a slow-growth, lower-valuation industry.
Of course, one has to evaluate the particular valuation metrics used. Also, not every ranking, even using the same metric, will produce the same results. That can be the case when industries routinely rely on different amounts of debt financing, when “cost of goods” is disparate, or when a ranking is unrepresentative of all firms in an industry (focusing only the largest firms, for example).
Industry | EV/Revenue |
Publishing | 31.54 |
EDP Services | 23.45 |
Construction/Ag Equipment/Trucks | 19.54 |
Computer Software: Prepackaged Software | 17.81 |
Biotechnology: Biological Products (No Diagnostic Substances) | 17.75 |
Real Estate Investment Trusts | 17.62 |
Retail: Computer Software & Peripheral Equipment | 17.18 |
Biotechnology: Electromedical & Electrotherapeutic Apparatus | 16.85 |
Managed Health Care | 14.97 |
Ophthalmic Goods | 14.57 |
Business Services | 14.37 |
Finance: Consumer Services | 14.29 |
Real Estate | 12.69 |
Auto Manufacturing | 12.53 |
Multi-Sector Companies | 10.34 |
Biotechnology: Commercial Physical & Biological Research | 10.33 |
Medical/Dental Instruments | 10.17 |
Advertising | 9.96 |
Semiconductors | 9.82 |
Investment Bankers/Brokers/Service | 8.57 |
Oil & Gas Production | 8.51 |
Hotels/Resorts | 8.29 |
Beverages (Production/Distribution) | 7.85 |
Major Pharmaceuticals | 7.75 |
Other Consumer Services | 7.38 |
Specialty Chemicals | 7.31 |
Environmental Services | 7.16 |
Industrial Machinery/Components | 6.81 |
Misc Health and Biotechnology Services | 6.78 |
Biotechnology: In Vitro & In Vivo Diagnostic Substances | 6.68 |
Restaurants | 6.62 |
Investment Managers | 6.62 |
Industrial Specialties | 6.54 |
Movies/Entertainment | 6.51 |
Building operators | 6.25 |
Telecommunications Equipment | 6.19 |
Other Transportation | 6.15 |
Diversified Commercial Services | 6.08 |
Electrical Products | 6.01 |
Television Services | 5.95 |
Electric Utilities: Central | 5.72 |
Radio And Television Broadcasting And Communications Equipment | 5.59 |
Services or Misc. Amusement & Recreation | 5.5 |
Savings Institutions | 5.35 |
Rental/Leasing Companies | 5.31 |
Water Supply | 5.22 |
Internet and Information Services | 5.19 |
Diversified Financial Services | 5.15 |
Railroads | 5.08 |
Biotechnology: Laboratory Analytical Instruments | 5.03 |
Precision Instruments | 5.01 |
Medical Specialties | 4.89 |
Power Generation | 4.74 |
Motor Vehicles | 4.65 |
Oil/Gas Transmission | 4.62 |
Specialty Foods | 4.52 |
Military/Government/Technical | 4.43 |
Assisted Living Services | 4.41 |
Package Goods/Cosmetics | 4.22 |
Diversified Manufacture | 4.01 |
Metal Fabrications | 3.98 |
Finance/Investors Services | 3.94 |
Medical Electronics | 3.86 |
Ordnance And Accessories | 3.82 |
Wholesale Distributors | 3.75 |
Office Equipment/Supplies/Services | 3.66 |
Natural Gas Distribution | 3.55 |
Broadcasting | 3.49 |
Fluid Controls | 3.46 |
Banks | 3.46 |
Tools/Hardware | 3.35 |
Oilfield Services/Equipment | 3.29 |
Commercial Banks | 3.24 |
Computer peripheral equipment | 3.23 |
Major Chemicals | 3.12 |
Medical/Nursing Services | 3.11 |
Aerospace | 3.06 |
Major Banks | 3.04 |
Specialty Insurers | 3.01 |
Life Insurance | 2.91 |
Agricultural Chemicals | 2.88 |
Paints/Coatings | 2.85 |
Building Materials | 2.84 |
Homebuilding | 2.8 |
Air Freight/Delivery Services | 2.79 |
Building Products | 2.78 |
Computer Software: Programming Data Processing | 2.68 |
Farming/Seeds/Milling | 2.6 |
Other Metals and Minerals | 2.56 |
Recreational Products/Toys | 2.54 |
Catalog/Specialty Distribution | 2.54 |
Shoe Manufacturing | 2.5 |
Precious Metals | 2.5 |
Other Specialty Stores | 2.3 |
Consumer Electronics/Video Chains | 2.24 |
Electronic Components | 2.23 |
Computer Manufacturing | 2.2 |
Steel/Iron Ore | 2.19 |
Professional Services | 2.18 |
Packaged Foods | 2.17 |
Marine Transportation | 2.12 |
Containers/Packaging | 2.09 |
Electronics Distribution | 2.07 |
Trucking Freight/Courier Services | 2 |
Service to the Health Industry | 2 |
Newspapers/Magazines | 2 |
Consumer Electronics/Appliances | 1.95 |
Meat/Poultry/Fish | 1.93 |
Home Furnishings | 1.93 |
Apparel | 1.77 |
Auto Parts: O.E.M. | 1.76 |
Integrated oil Companies | 1.73 |
Hospital/Nursing Management | 1.71 |
Pollution Control Equipment | 1.65 |
Automotive Aftermarket | 1.57 |
Aluminum | 1.57 |
Coal Mining | 1.54 |
Textiles | 1.5 |
Department/Specialty Retail Stores | 1.49 |
Food Distributors | 1.47 |
Paper | 1.4 |
Clothing/Shoe/Accessory Stores | 1.35 |
Plastic Products | 1.31 |
RETAIL: Building Materials | 1.15 |
Engineering & Construction | 1.09 |
Consumer Specialties | 1.04 |
Property or Casualty Insurers | 1.01 |
Transportation Services | 0.99 |
Accident & Health Insurance | 0.98 |
Oil Refining/Marketing | 0.93 |
Tobacco | 0.92 |
Other Pharmaceuticals | 0.92 |
Finance Companies | 0.91 |
Trusts Except Educational Religious and Charitable | 0.79 |
Forest Products | 0.51 |
Food Chains | 0.31 |
source: https://eqvista.com/revenue-multiples-by-industry/ |
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