What Is a Pure Play? Meaning, Pros and Cons, Example

What Is a Pure Play?

By Keith Noonan – Updated Nov 21, 2024 at 10:16 AM

Key Points

Pure-play companies focus on one industry, potentially simplifying investment analysis.
Diversified companies span multiple sectors, requiring broader industry knowledge.
Understanding company focus helps investors align with their specific interest areas.

Before you invest in a company, it's important to understand the makeup and focus of its business. While some companies take a diversified approach and operate in a variety of industries, others are pure plays and focus on only one key category.

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By contrast, it's important to understand each industry in which a diversified company is active. When it comes to diversified companies, it's necessary to consider their operations, opportunities, and risks across the various industries it participates in.

It's also important to understand the company's revenue breakdown by industry. If the industry or product category you want to invest in accounts for a relatively small portion of that company's sales, it may not make sense to buy its stock.

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Compared to a pure play, a diversified company will be better positioned to handle underperformance in a given category because it has other sources of business. But individual successes can also be negated by other areas of the business.

Even if a diversified company succeeds in a particular category you want to invest in, its overall business and stock results might still be underwhelming due to its performance in other categories.

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Rather than trying to branch into unrelated new business categories to drive growth, Take-Two has concentrated on its area of expertise. In general, this pure play's focus has worked out quite well for the company and its long-term shareholders.

By comparison, Microsoft (MSFT -0.15%) also has a strong position in the gaming industry but offers cloud services, productivity software, and a wide range of other software and hardware products. Video games make up a relatively small portion of the tech giant's hugely successful business, but its operations in the space help strengthen its overall product ecosystem.

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About the Author

Keith Noonan is a contributing writer at The Motley Fool covering technology, consumer goods, and other sectors. He holds a bachelor’s degree in English from Boston College.

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Keith Noonan has positions in Take-Two Interactive Software. The Motley Fool has positions in and recommends Microsoft and Take-Two Interactive Software. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.