What is Market Share?

Market share is the proverbial pie of an industry that companies split, but there’s more to it than just a simple number.

Of the many ways you can analyze the position of a given company, market share is one metric that you come across regularly. At the most basic level, this number tells you how dominant a company is within its industry.

For example, let’s say there is $100 worth of couches sold in the U.S. in a quarter. Company A has sales of $30, company B is at $40, company C sells $25, and company D is just getting started and sells $5 worth of those couches. In this case, company B has the largest market share, at 40%, followed by company A at 30%, company C at 25%, and company C at 5%.

Based solely on these numbers, company B looks like the best potential investment. Here’s the catch, though. This is just a snapshot. And there are plenty of other factors that play into a stock’s performance. When you zoom out, you may find that company B is in decline. Perhaps their market share was 50% a year ago, which would indicate they are losing sales.

Put simply, there is no specific percentage you look for because it changes all the time. The potential market share of a company should be increasing and projected to grow within the duration of your investment. If you prefer value investing and long-term investing, you have a more extended period to wait for market share to increase. If you’re a growth investor, you’re not likely going to see large changes in market share over a short period.

And even with all of that, the truth is that the only reason stocks go up is that someone believes they can make money by buying them. And people’s reasons for that belief are all over the map.

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