Company risk is the risk incurred by owning stock in a specific company. The risk incurred is the potential the company performs poorly, painfully, or...just plain goes broke.
Extreme example: An investor thinks Tom’s Reversible Condoms is going to explode (in a good way). He invests all of his assets into TRC (ticker for Tom’s Reversible Condoms). The investor was unaware that a company in Germany (HANS) produced and now markets a far superior competing product. As a result, TRC is heading toward Bagel Land ($0/share). The German competition ate its lunch.
From an investor’s perspective, individual company risk is a biggie in high growth markets where the entire industry is growing super fast and investors aren’t sure on which horse to bet their dough. Think: Internet search engine companies in 1996. There were like 40 of them. Maybe 400 if you include the, um...“art film” searching engines.
The industry grew fast; many lost. Google won. Big. Had you bet all of your money on Alta Vista, you’d have been one of the losers. So individual company risk is often mitigated via investing in a sector fund exposed to “everyone” in the space.