Cyclical business

A cyclical business is one whose revenue and profit rise and fall with the broader economy or a specific industry cycle, rather than growing steadily regardless of conditions. Semiconductor makers, homebuilders, airlines, and commodity producers are common examples, industries where demand swells during good times and pulls back hard during a downturn.

A cyclical business posting shrinking revenue isn't automatically a red flag the way it might be for a steadier company. What matters is whether margins are holding up during the weak stretch and whether the industry has a track record of recovering once the cycle turns, rather than assuming a down year means the business itself is failing.

The opposite of a cyclical business is sometimes called a defensive or non-cyclical business, one that sells things people keep buying regardless of the economy, groceries, utilities, and basic healthcare being common examples. Knowing which kind of company is in front of you changes what a weak or strong year actually tells you.