The Importance of Market Cap Friday, August 17, 10:19 AM ET
Many "beginner" investors will look at one stock trading at $10 and another trading at $20 and think the latter company is worth twice as much. Of course, that is a completely meaningless comparison without knowing how many shares of each company exist.
Enter "Market Capitalization" or "Market Cap" for short, which factors in the share count and multiplies by the current stock price, allowing for a true look at the value attributed by the stock market to a given company's stock.
A company's market cap could determine which types of investors the stock attracts. 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. A company's market cap can make it ineligible for certain ETFs as well. For example, the S&P MidCap ETF (AMEX:MDY) essentially takes the S&P 500 and then "tosses out" the biggest 100 companies so as to focus solely on the 400 smaller ones.
So a company's market cap, especially in relation to other companies, carries great importance, and investors should understand and follow this important data point.
Any ideas and opinions presented in all Market News Video clips are for informational and educational purposes
only, and do not reflect the opinions of BNK Invest, Inc. or any of its affiliates, subsidiaries or partners.
In no way should any content contained herein be interpreted to represent trading or investment advice.
None of the information contained herein constitutes a recommendation that any particular security, portfolio,
transaction, or investment strategy is suitable for any specific person. All viewers agree that under no
circumstances will BNK Invest, Inc,. its subsidiaries, partners, officers, employees, affiliates, or agents be held
liable for any loss or damage caused by your reliance on information obtained. Read Full Disclaimer.