Market capitalization is an important data point for investors to keep an eye on, for various reasons. The most basic reason is that it gives a true comparison of the value attributed by the stock market to a given company's stock. Many beginning investors look at one stock trading at $10 and another trading at $20 and mistakenly think the latter company is worth twice as much — that of course is a completely meaningless comparison without knowing how many shares of each company exist. But comparing market capitalization (factoring in those share counts) creates a true "apples-to-apples" comparison of the value of two stocks. In the case of Archer Daniels Midland Co. (NYSE:ADM), the market cap is now $25.24 billion, versus Alexion Pharmaceuticals Inc. (NASDAQ:ALXN) at $24.90 billion.
Below is a chart of Archer Daniels Midland Co. versus Alexion Pharmaceuticals Inc. plotting their respective size rank within the S&P 500 over time (ADM plotted in blue; ALXN plotted in green):
Below is a three month price history chart comparing the stock performance of ADM vs. ALXN:
Another reason market capitalization is important is where it places a company in terms of its size tier in relation to peers — much like the way a mid-size sedan is typically compared to other mid-size sedans (and not SUV's). This can have a direct impact on which mutual funds and ETFs are willing to own the stock. For instance, a mutual fund that is focused solely on Large Cap stocks may for example only be interested in those companies sized $10 billion or larger. Another illustrative example is the S&P MidCap index which essentially takes the S&P 500 index and "tosses out" the biggest 100 companies so as to focus solely on the 400 smaller "up-and-comers" (which in the right environment can outperform their larger rivals). So a company's market cap, especially in relation to other companies, carries great importance, and for this reason we at The Online Investor find value to putting together these rankings daily.
At the closing bell, ADM is up about 2.1%, while ALXN is trading flat on the day Thursday.
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