On our last Post “The Stock Market Basic Part 1″ We explain some of the basics of the Stock Market, such as how to prepare before you get started, How to pick the winners….
Today we are going to tell you about the Market capitalization!
What is the Market capitalization? How does it effect Stock Value?
You can determine the value of company in many ways. The most basic way to measure this value is to look at a company’s market value, also known as market capitalization. Market capitalization is simply the value you get when you multiply all the outstanding shares of a stock by the price of a single share.
Calculating the market cap is easy. It’s the number of shares outstanding multiplied by the current share price. Eg. company has 1 million share outstanding and its shares price is $10, the market cap is 10 million.
Small cap, mid cap, and large cap are not references to headgear; they are references to how large the company is as measured by its market value. Here are the five basic stock market capitalization:
Micro cap (under $250 million): These stock are the smallest with the potential growth but hence the riskiest available.
Small cap ($250 million to $1 billion): These stocks fare better than the microcaps and still have plenty of growth potential.
Mid cap ($1 billion to $5 billion): For many investors, this offers a good compromise between small caps and large caps. These stock have some of the safety of large caps while retaining some of the growth potential of small cap
Large cap ($5 billion to $25 billion): This category is usually best reserved for conservative stock investors who want steady appreciation with greater safety. Stocks in this category are frequently referred to as “blue chips”
Ultra cap (over $25 billion): These stocks are also called “mega caps” and obviously refer to companies that are the biggest of the big.
Remeber:
From a safety point of view, the company’s size and market value do matter. All things being equal, large cap stocks are considered safer than small cap stocks. However, small cap or micro cap stocks have greater potential for growth. Compare these stocks to trees: Which tree is sturdier? A giant California redwood or a small oak tree that’s just a year old? In a great storm, the red wood holds up well, while the smaller tree has a rough time. But you also have to ask yourself which tree has more opportunity for growth. The red wood may not have much growth left, but the small oak tree has plenty of growth to look forward to.
That’s why we are here! We will bring you solidly fundamental stock idea’s within the Small Cap Arena (small oak tree) that have the potential for huge growth!
For beginning investors, comparing market cap to trees isn’t so far-fetched. You want your money to branch out without becoming a sap. “Never invest on those small cap stock by yourself!”
Although market capitalization is important to consider, don’t just based on it. It’s just one measure of value. As a serious investor, you need to look at numerous factors that can help you determine whether any given stock is good investment.
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