What is Market Cap?
Market Capitalization is the aggregate dollar-value of all outstanding shares of a company’s stock.
This means, if a company has 15 million shares of stock out in the public markets and each of those shares is valued at $10, then that company has a “market cap”of $150 million.
Market cap is the current “total value”of a public company in the eyes of the marketplace.
Market Cap Meaning
A company’s market cap is the first way an investor assesses how “big”a company is.
There are traditionally five categories of market capitalization:
Categories of Market Capitalization
Each category of market capitalization has its own characteristics associated with it.
Mega-cap companies are very mature companies that have established dominance in their industry.
These companies are generally “blue chip”stocks and viewed as “safe, steady”investments for long-term strategies.
Micro-cap companies, on the other hand, are typically young companies with little-to-no track record.
Although micro-cap stocks are considered to be volatile of the 5 categories, investors often allocate a percentage of their portfolio to micro-cap stocks because of their potential upside.
The Perception of Value
It is important to remember that a company’s market cap may be different than the true economic worth of their assets and ability to generate profitsâ€”market cap can be viewed as what the markets perceive a company to be worth.
Consider More Data Points
“Value investors,”like Warren Buffet, have built their careers by investing in companies that were more valuable than the market realized.
It’s for this reason that market cap, as well as any other single data point, should not be viewed in isolation when assessing a company’s value.