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.
