In fact, there are more small-cap stocks than large- and mid-cap stocks combined. Small-cap stocks are the most numerous companies in the market. And in the business world, companies could look for possible acquisition opportunities within small-cap competitors.
Fund managers may craft an investment strategy to focus on particular segments of stocks based on their market cap.
These composition decisions directly impact which stocks are included in any index funds you own.Īctively managed funds rely on market cap designations as well. Index providers also use market cap to determine which companies should be included in benchmarks. Grouping companies of similar sizes together allows you to better compare their stocks and performance. Market capitalization data is helpful for investors when they are evaluating the growth and risk prospects of stocks to include in their portfolios. A company’s size in terms of market capitalization doesn’t tell its whole story, but market cap information is useful for a variety of key decisions. Market cap is generally used to divide stocks into three categories based on size: large-, mid- and small-caps. Market cap data is generally available for publicly traded companies on any website that provides real-time stock information. You can calculate market cap by multiplying a company’s current stock price by the total number of shares outstanding. The price of the share is irrelevant when determining whether or not a stock qualifies as a "micro cap" - rather, market capitalization is used instead.ĭavemanuel.Market capitalization measures a publicly traded company’s total market value. The market capitalization for the company is $104 million, which makes it a "micro cap" stock. Note #2: there is no concrete definition of the term "micro cap"Įxample: XYZ is a small biotech firm that is currently trading for $7 per share. The downside to this, of course, is that Microsoft is a steady, established business, whereas "micro caps" tend to be more hit and miss. For instance, a $60 million "micro cap" could easily double in a short period of time (if the right things happen to it), whereas a stock like Microsoft would not offer the same sort of upside potential. On the other hand, "micro caps" obviously offer rich potential. "Micro caps" tend to be viewed as more speculative investments that have a greater degree of risk. Note: the only classification of stock smaller than a "micro cap" is a "nano cap", which encompasses all stocks with market capitalizations of less than $50 million. What is a micro cap stock? What is the definition of a micro cap stock? What constitutes a stock being classified as a "micro cap"?Ī stock is classified as a "micro cap" if it has a market capitalization of between $50 and $300 million.
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