Cyclical vs Defensive

How the economy moves a business.

Some businesses rise and fall with the economy (cyclical); others hold steady through good times and bad (defensive). Knowing which you own changes how you read its numbers. Cyclical Profits swing with the economy, e.g. construction, autos. A low P/E at a peak can be a trap. Defensive Steady demand regardless of cycle, e.g. utilities, staples. Steadier profits, often steadier prices. For cyclicals, a very low P/E often appears right before earnings fall. The number looks cheap because the market sees the downturn coming.

Part of Learn NEPSE Investing, a free course on reading Nepali company accounts and charts. Section: Valuation.