skills/idea-generation/references/sector-overlays.md

# Sector Overlays for Public-Market Idea Generation

Use this reference when the user specifies a sector, when a company is in a sector with specialized metrics, or when generic multiples would mislead.

## General rule

Never apply one generic factor framework across all sectors. Use the metrics that actually drive value and estimate revisions in the relevant business model.

## Software / SaaS / Internet

Relevant metrics:
- ARR growth, RPO/cRPO growth, bookings, billings, net revenue retention, gross retention.
- Gross margin, FCF margin, operating margin, Rule of 40, CAC payback, sales efficiency.
- SBC as percent of revenue, dilution, deferred revenue, contract duration.
- Enterprise vs SMB exposure, consumption vs seat-based model, customer concentration.
- AI disruption/tailwind, pricing power, platform consolidation, churn, new logo trends.

Valuation:
- EV/revenue, EV/gross profit, FCF yield, growth-adjusted revenue multiple, mature-state margin framework.

Traps:
- FCF boosted by deferred revenue timing or underinvestment.
- High NRR hiding weak new-logo growth.
- SBC masking true economics.
- AI narrative without monetization.
- Consumption model cyclicality mistaken for secular deceleration.

## Semiconductors / Hardware

Relevant metrics:
- End-market mix, backlog, book-to-bill, inventory days, channel inventory, utilization, wafer starts.
- ASPs, gross margin cycle, capex cycle, customer concentration, China/export-control exposure.
- AI/datacenter exposure, gaming/PC/mobile/auto/industrial cycle.

Valuation:
- Through-cycle P/E, EV/sales, EV/EBITDA, gross-margin-normalized earnings, cycle-adjusted multiples.

Traps:
- Peak margins capitalized as normal.
- Inventory correction hidden by backlog.
- Double ordering.
- Export control or customer concentration risk underpriced.

## Banks

Relevant metrics:
- P/TBV, ROTCE, CET1, NIM, deposit beta, loan growth, deposit flows, fee income.
- Credit costs, reserve build/release, nonperforming assets, CRE exposure, AOCI marks, duration risk.

Valuation:
- P/TBV relative to sustainable ROTCE and capital return; avoid EV/EBITDA.

Traps:
- Low P/E because credit costs are too low.
- Tangible book quality impaired by unrealized losses.
- NIM expansion temporary.
- Capital return constrained by regulation or losses.

## Insurance

Relevant metrics:
- Combined ratio, loss ratio, expense ratio, reserve development, premium growth, pricing cycle.
- ROE, book value growth, investment yield, cat exposure, capital adequacy.

Valuation:
- P/B, P/E, ROE spread, reserve-adjusted book value.

Traps:
- Reserve releases flattering earnings.
- Cat normalization too optimistic.
- Investment gains masking underwriting weakness.

## Consumer / Retail / Restaurants

Relevant metrics:
- Same-store sales, traffic vs ticket, gross margin, promotions, inventory, shrink, loyalty, credit exposure.
- Unit growth, restaurant-level margin, franchise mix, wage/input costs, lease-adjusted leverage.

Valuation:
- EV/EBITDAR, P/E, FCF yield, unit economics, normalized margin.

Traps:
- Price-driven comps mistaken for demand.
- Margin benefit from temporary freight/input relief.
- Inventory markdown risk.
- Consumer credit stress lagging.

## Industrials

Relevant metrics:
- Organic growth, backlog, book-to-bill, segment margins, aftermarket mix, price/cost spread.
- Restructuring savings, capex cycle, automation, aerospace/auto/construction exposure, China/Europe exposure.

Valuation:
- Mid-cycle P/E, EV/EBITDA, EV/EBIT, FCF yield, SOTP for diversified industrials.

Traps:
- Late-cycle order strength.
- Backlog not converting.
- Margin expansion from price/cost tailwind that fades.
- Acquisition integration risk.

## Energy / E&P / Oilfield Services

Relevant metrics:
- FCF at strip, production growth, decline rates, reserve life, lifting costs, breakeven prices.
- Hedge book, capex intensity, inventory depth, service cost inflation, leverage, capital return framework.

Valuation:
- EV/DACF, FCF yield at strip and mid-cycle, NAV, reserve value, recycle ratio.

Traps:
- Spot commodity price overstates sustainable FCF.
- Maintenance capex understated.
- Inventory quality deteriorating.
- Political/regulatory risk.

## Metals and Mining

Relevant metrics:
- Commodity exposure, cost curve position, reserve life, grade, production profile, capex commitments.
- Jurisdiction risk, permitting, balance sheet, hedging, byproduct credits.

Valuation:
- NAV, EV/EBITDA at spot and long-term commodity prices, FCF yield, replacement value.

Traps:
- Using spot prices as normalized.
- Understated sustaining capex.
- Mine-life and permitting risk.
- Country/geopolitical risk.

## Healthcare Services / Medtech / Pharma / Biotech

Relevant metrics:
- Procedure volumes, reimbursement, payer mix, utilization, pricing, pipeline, patent cliffs.
- Trial readouts, regulatory calendar, R&D productivity, product cycles, physician adoption.

Valuation:
- P/E, EV/EBITDA, pipeline risk-adjusted NPV, sum-of-parts, patent-cliff-adjusted earnings.

Traps:
- Binary clinical/regulatory risk hidden by screens.
- Patent cliff underappreciated.
- Reimbursement pressure.
- Pipeline probability too optimistic.

For pre-commercial biotech, avoid generic screens unless the user explicitly requests biotech event ideas.

## REITs

Relevant metrics:
- AFFO, FFO, NAV, implied cap rate, occupancy, leasing spreads, same-store NOI.
- Lease duration, tenant concentration, debt maturity, floating-rate debt, development pipeline.

Valuation:
- P/AFFO, NAV discount/premium, dividend yield quality, implied cap rate vs private market cap rates.

Traps:
- Dividend yield as false support.
- NAV based on stale cap rates.
- Refinancing risk.
- Tenant concentration.

## Telecom / Cable / Media

Relevant metrics:
- Subscribers, churn, ARPU, broadband net adds, content costs, advertising, leverage, capex, spectrum.
- FCF, pricing, competitive intensity, cord-cutting, streaming losses/profitability.

Valuation:
- FCF yield, EV/EBITDA, leverage-adjusted equity value, sum-of-parts.

Traps:
- FCF masked by underinvestment.
- Leverage overwhelms equity value.
- Subscriber trends deteriorating faster than consensus.

## Utilities / Infrastructure

Relevant metrics:
- Rate base growth, allowed ROE, regulatory jurisdiction, capex plan, balance sheet, rate cases.
- Renewable exposure, project execution, wildfire/storm/liability risk.

Valuation:
- P/E, dividend yield, premium/discount to regulated utility peers, rate-base growth-adjusted multiples.

Traps:
- Regulatory lag.
- Equity issuance needs.
- Catastrophe/liability risk.
- Dividend not covered by FCF.

## Payments / Exchanges / Marketplaces

Relevant metrics:
- TPV, take rate, volume growth, active users, frequency, monetization, mix, chargebacks.
- Operating leverage, competitive intensity, regulatory risk, network effects.

Valuation:
- P/E, EV/EBITDA, FCF yield, EV/gross profit, growth-adjusted multiples.

Traps:
- Volume growth without take-rate durability.
- Regulatory fee pressure.
- Marketplace quality weakening.
- Competition compressing margins.

## Credit Markets Handoff / Equity-Risk Signal

Relevant public-equity signal metrics:
- Maturity wall, leverage, interest coverage, liquidity runway, rating pressure, CDS/spread warning signals, refinancing windows.
- Equity downside mechanism, estimate risk, valuation support, and catalyst timing tied to credit stress.

Local idea-generation use:
- Flag listed-equity ideas where credit stress may create downside, optionality, catalyst pressure, or a handoff need.
- Route credit instruments, creditworthiness, restructuring, distressed, recovery, spreads, yields, covenants, debt security analysis, or capital-structure priority to Credit Markets.

Traps:
- Treating a bond/loan/CDS setup as a Public Equity idea.
- Using credit stress without an equity impairment mechanism.
- Screening for distress without security-level or covenant support from Credit Markets.