Pure Play is an investment strategy in which an investor only deals in stocks of companies that specialize in a single industry sector and do not have any business outside of it. These companies are often considered by investors to offer higher potential returns, as they are dedicated to a single product line and are highly focused on it.

Pure Plays are usually identified by researching a company’s company mission and financial reports, to gain an understanding of how much of the company’s earnings come from each product or industry sector. Pure-play companies must be significantly specialized in their industry sector, as diversified companies can have a significant portion of their money coming from products of other industries, which would disqualify them from being a pure-play.

Pure Plays offer particular advantages for investors. First, these stocks are typically much more predictable than diversified stocks. Since the companies’ fortunes depend almost entirely upon success in a single particular sector, investors can have a better understanding of when to invest or divest, without having to keep up with an assortment of industries. This higher degree of predictability also leads to businesses that are more profitable, as they tend to generate more consistent revenues.

While there can be significant benefits to investing in pure play companies, there are also potential pitfalls to consider. Pure play stocks come with higher levels of risk since they are so heavily tied to the performance of their respective industry. Additionally, these stocks may not provide the same level of diversification as a company with multiple products or services. It’s also important to understand that a company can become “too” focused on its single industry, leading to an over-reliance and lack of innovation.

When selecting a pure-play stock, it’s important to do your research and make sure that the company is truly specialized in their sector and not just injecting their profits from one particular industry into multiple market segments. Additionally, focus on companies that have a history of steady growth and profitability, as well as a good track record of innovation and staying on the cutting edge of their sector. Finally, assess the risk and returns of the company, and ensure that its performance lines up with your investment objectives.