Friday, April 29, 2022

Market cap: what does it mean?

What is a market cap

Market Cap is an English term for market value, which represents the dollar amount in which the company's stock market resides. The market cap consists of the total dollar value of all existing company shares. This value is calculated by taking the total number of existing shares and multiplying it in the share price.

What does a market cap mean or the market value of shares?

Market Cap is used to determine the size of the company. The size of the company is important to focus on as some investors choose larger or smaller companies to invest in. A balanced portfolio strategy may include including equity investments in companies of different sizes. The Market Cap basically measures the value of the company that the market is aware of at a given time.

Investors often associate the size of the company with the amount of risk they expect from investing in that company's shares. Investors consider small firms in general to be more risky than large-cap companies. Risks generally increase as expectations of returns rise (or the higher potential returns).

Type 1: Large Cap Stocks shares

Companies with large capitalisation are companies with a market capitalisation of at least $10 billion. Investors sometimes call these companies large-cap companies.  This type of company is solid and powerful and has usually existed for a long time.

Investing in large companies may have different characteristics in terms of risk/return rates versus investment characteristics in small businesses. Many large-cap stocks pay dividends and their earnings increase regularly. Some large companies are technology companies that are growing rapidly but may be less profitable. Often, large companies are considered less dangerous than small firms.

Examples of large-cap stocks

1. Starbucks Stock (NASDAQ: SBUX): This stock has historically outperformed the financial market since its initial public offering (IPO) in 1992. He appears ready to continue to gain market share despite the setbacks caused by the Corona pandemic. Starbucks is a good example of large stocks that are increasingly likely to grow, with opportunities in China, providing connectivity, digital connectivity and high profit flows. The company has significant competitive advantages, including its well-known brand, renowned rewards programs, and technology service initiatives such as demand and mobile payment.  Starbucks began paying dividends in 2010 and has raised them every year since then, making it a potential future dividend company.

2. MercadoLibre (NASDAQ: MELI): The largest e-commerce site in Latin America, it is also a great example of a large company continuing to grow faster. It can be said that this company with its services is a combination of eBay, where the site includes lists of third-party traders, and Amazon, because it builds its own shipping network. But the joint order in these two companies and also see it in MercadoLibre is the company's payment tool, MercadoPago. Originally considered a PayPal-like service for MercadoLibre shoppers, which has evolved into a multinational bank for Latin America, it is used to make payments in places such as grocery stores and gas stations.

3. WallMart (NYSE: AT): It is the largest retailer in the world, as well as being the largest company in the world by revenue. It enjoys many competitive advantages, including economies of scale that work for it, low prices, and large numbers of stores so that it has succeeded in being approximately 10 miles close to 90% of the population in the USA.

Type 2: Shares of medium-capitalised companies

Medium-capitalised companies are companies with a market capital of between $2 billion and $10 billion. Companies in this category are usually well established and are in sectors that are expected to grow rapidly. Many medium-sized companies grow and therefore can one day become largely capitalised. Medium-sized capital tends to be more risky than large companies, but many investors prefer medium-sized companies because they are likely to achieve higher growth rates than large companies.

Examples of shares of medium-capital companies

Don't be surprised if you don't immediately identify each medium-sized share listed below, as some medium-sized companies are familiar names, but many are not, especially those in specialized industries.

1. Umbrella Shares (NASDAQ: AMBA): Is a relatively small company specialising in semiconductor or computer chips. Umbrella does not manufacture these chips, but designs components that are then manufactured by its chip manufacturing partners. Specifically, Umbrella focuses on computer-vision semiconductors, which use artificial intelligence to help the computer system "see" and recognise what's in the field of vision, and make decisions based on that information. These applications include security cameras and self-driving vehicles, and the latter is expected to be a huge growth market in the next two decades.

Clover Health Investments (NASDAQ: CLOV: A fast-growing health insurance company) was iPod in January 2021 through a merger with a privately held acquisition company (SPAC), managed by Shaman Partiality, a former Facebook CEO who became venture capital. Clover currently operates as a health insurance company but in a sophisticated manner, where its program is directly integrated with healthcare providers, eliminating layers of bureaucracy that Plagued by traditional health care plans. Although it is not yet profitable, the company is on a clear path to a break-even point and could disrupt the huge healthcare industry.

3. Stitch Fix (NASDAQ: SFIX): A great example of a growing young company that is no longer classified as small but still in the early stages of free cash flow generation. Stitch Fix sells and ships clothing and accessories in coordination with its subscribers, using artificial intelligence to boost sales and match user preferences with company choices. While the garment industry was damaged during the epidemic, Stitch Fix bucked the trend and continued to grow. The company is reinvesting heavily to increase its expansion rate and benefit from higher consumer spending on clothing.

Type 3: Small-Cap Stocks shares

The market value of small shares is $300 million to $2 billion. Many small businesses have not existed for as long as large companies, but this is not always the case. Small businesses often serve a small niche market or a new industry. This is because they are often smaller than medium- and large-cap companies, and because they tend to serve smaller markets. In any case, small firms are generally considered to be more dangerous.

Small-cap companies are often more volatile and less liquid than medium- or large-cap companies. The reason for this is that it attracts traders more than investors. However, the smaller size of these companies offers the potential for further growth and higher stock prices for investors who choose stocks wisely and prefer to invest in the long run.

Examples of small-cap company shares

Many small businesses are not familiar - at least so far. Here are some small stocks:


Formerly known as U.S. Auto Parts, (NASDAQ: PRTS) is an online auto parts retailer that has recently come under new management. By integrating its web brands into the name of the site as, the company simplified its business and increased sales during the corona spread. The company is investing in technology and marketing and has recently opened two new distribution centres. It also seems to have the potential to continue to grow, due to the lack of semiconductor chips in the manufacture of cars that raise the prices of new and used cars. In the long run, the company targets revenue growth of between 20% and 25%, meaning the success of the site may exceed the pandemic period.

2. ACM Research

As a manufacturer of semiconductor chip cleaning equipment, ACM (NASDAQ: ACMR) is a core research firm for semiconductor sector companies. When investing in ACM Research, it is possible to invest in a high growth sector without risking falling chip prices.

In addition, ACM is a U.S. company that operates most of its business in China, giving investors a relatively safe investment method to open up to the Chinese market. It is also one of the rare small companies offering high growth potential and strong profitability.

3. App Harvest Shares

App Harvest (NASDAQ: APPH) is one of the most interesting small stocks to start trading on the financial market recently, a leading vertical agriculture company that went public in February 2021, through a merger with a privately held acquisition company (SPAC).

Although App Harvest is essentially a development company, generating only $2.3 million in revenue in the first quarter of 2021, the company aims to be the world's largest in-house commercial farm. If its business model works, App Harvest's market value may increase by multiples of its current valuation, which is less than $2 billion.

Micro-Cap Shares

Small micro-companies have a capital of less than US$300 million. These companies are considered to be the most dangerous among other species because they usually continue to develop their businesses. In fact, many micro-capital firms have almost no track record of achievement and sometimes have little assets or revenues. Investments in micro-capital stocks carry significant risks and increase the possibility of achieving a significant return if carefully selected. However, it can sometimes be like gambling when an investor buys shares of a company that has no track record or assets.

Important note: In general, the higher the market value, the lower the risk associated with this stock. However, any share, regardless of its size or condition, can decrease in value.

How to calculate market value?

As mentioned earlier, the market value is calculated as follows:

Market value = number of existing shares X last share price

Can the market cap change?

Market value (market cap) changes daily, as stock prices move up and down when stock markets are open. Many medium-capital companies grow and become large-capital companies, while small firms often grow into medium-sized companies. However, the opposite can be true for companies that are struggling in their businesses. Apart from stock price changes, market value can change when companies issue additional shares to investors. If the number of existing shares increases, the company's market value will rise, unless its share price falls to the point where it compensates more than those newly issued shares. In order for the company's market value to shrink, the company either buys back shares from investors, reducing the number of existing shares, or its share price falls.

Keep in mind market value (market capitalisation) before investing

As mentioned earlier, a balanced portfolio may include investments in shares in companies of different sizes, ensuring risk diversification. There are many other ways to diversify the investment portfolio, so that it is not just about choosing stocks from different categories with a market value.

During certain periods when investors are increasingly resting on high-risk stocks, small-cap companies may rise more than those of large capital companies. On the other hand, when investors are more risk-averse, they often rely more on large capital for their relative security.

Small firms also tend to perform better during the economic recovery as investors are more risk-averse and looking for opportunities to increase their investments in order to achieve the expected recovery. Large companies are usually considered safer investments, as they are less likely to fall sharply. But that's not always the case, even premium companies sometimes collapse if their businesses become old-fashioned or noncompetitive or less profitable.