A company that has not yet made a profit but has developed a product thought likely to be profitable in the future. For example, a company in the process of developing a revolutionary computer technology may attract investors because they believe the company possibly might become the next Microsoft or Google. On the other hand, value investors tend to stay away from concept companies because they lack the fundamentals to make themselves attractive.
Farlex Financial Dictionary. © 2012 Farlex, Inc. All Rights Reserved
Is "concept" more important overall than assets or income, when one evaluates concept companies?
A firm that attracts investors more on the basis of the type of business it is in or by the direction in which its management says it is moving than on its current earnings or dividends. For example, a company involved in sophisticated biomedical research that might achieve a major scientific breakthrough and large profits could qualify as a concept company. Concept companies of the 1990s include firms engaged in computer software development, Internet commerce, genetic engineering, and medical technology.
Concept companies rely on investor psychology rather than fundamentals. If an investor can spot a concept or fad before it actually becomes popular, there is the possibility for gains. Warning: fundamentals become secondary for a concept stock.Steven Flagg, Senior Vice President—Investments, UBS PaineWebber, Mount Kisco, NY
Wall Street Words: An A to Z Guide to Investment Terms for Today's Investor by David L. Scott. Copyright © 2003 by Houghton Mifflin Company. Published by Houghton Mifflin Company. All rights reserved. All rights reserved.