Market Cap Defined:

Market capitalization or market cap is one way to compare two different stocks that have similar market prices. A market cap valuation is an additional method for grouping stocks outside of their sector or industry.

Market Cap or Market Capitalization = Total Outstanding Common Shares x Current Market Price

Market capitalization is not strictly defined, but the following are widely accepted cap sizes:

  • Mega Cap:
    • Cap Size: $200 Billion +
    • Alternate Name: Blue Chip
    • Example: CitiGroup Inc.
  • Large Cap:
  • Mid Cap:
  • Small Cap:
  • Micro Cap:
  • Nano Cap:

Common Misunderstanding:

A common misunderstanding held by novice investors is to judge the size of a company based on its stock price. It is not always the case that a company with a higher stock price is larger than a company with a lower stock price.

Example where stock price and market capitalization are greater:

  • Google Inc:
    • Market Cap: $120.83 Billion
    • Market Price: $397.00 Per Share
  • Yahoo Inc.

Example where stock price is greater, but market capitalization is less:

  • JP Morgan Chase & Co.
    • Market Cap: $163.92 Billion
    • Market Price: $47.22 Per Share
  • Morgan Stanley

General Inferences:

Market cap size can indicate the growth rate of a company. Typically, the larger the market cap, the more stable and less growth potential a company has. However, in the above example, Google Inc. has grown quickly over the past 8 years and continues to show signs of positive growth: Google News. This quick growth rate is not a common characteristic held by public companies.

It is important to understand that market capitalization may fluctuate because of acquisitions, divestitures, and stock repurchases; these reasons may be unrelated to stock performance.