Concentration risk

Concentration risk is the risk that too much of a company's business rests on a single source, whether that's one customer, one industry, one product line, or one country, so that a problem in that one area does outsized damage to the whole company.

It shows up in different forms. Customer concentration is when a handful of clients make up a large share of revenue, common for companies serving governments, large enterprises, or a few big retailers. Sector concentration is when a company depends heavily on one industry's spending, such as defense or oil and gas. Geographic concentration is when most revenue comes from a single country or region, exposing the company to that region's regulation, currency, or political risk.

Concentration risk doesn't mean a company is a bad investment, many strong businesses are concentrated by nature of what they sell and to whom. But it does mean growth that looks impressive today can be more fragile than it appears, since a single lost contract, budget cut, or regulatory change can move the numbers far more than it would for a company with a broader, more diversified base.