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By Market News Video Staff, Friday, November 20, 4:39 PM ET
Play Video: The Importance Of Market Cap

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In the latest look at stocks ordered by largest market capitalization, Russell 3000 component Natera Inc (NASDAQ:NTRA) was identified as having a larger market cap than the smaller end of the S&P 500, for example Invesco Ltd (NYSE:IVZ), according to The Online Investor. Click here to find out the top S&P 500 components ordered by average analyst rating »

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 Natera Inc (NASDAQ:NTRA), the market cap is now $7.27B, versus Invesco Ltd (NYSE:IVZ) at $7.22B.

Below is a three month price history chart comparing the stock performance of NTRA vs. IVZ:

NTRA,IVZ Relative Performance Chart

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 indices will include the stock, and 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). And ETFs that directly follow an index like the S&P 500 will only own the underlying component of that index, selling companies that lose their status as an S&P 500 company, and buying companies when they are added to the index. So a company's market cap, especially in relation to other companies, carries great importance, and for this reason we at find value to putting together these looks at comparative market capitalization daily.

Examine the full NTRA market cap history vs. the full IVZ market cap history.

At the closing bell, NTRA is up about 2.8%, while IVZ is down about 1.5% on the day Friday.

This Article's Word Cloud:   Another   Below   Capitalization   ETFs   Invesco   Market   NTRA   NYSE   Natera   about   apples   capitalization   companies   company   comparing   comparison   component   example   find   full   history   important   index   investors   larger   like   look   market   mdash   much   mutual   only   ordered   other   raquo   reason   relation   size   smaller   solely   stock   stocks   that   their   those   trading   true   value   which   will
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