What makes a company a large cap or a small cap?
What the heck is a “blue chip” stock?
Knowing the difference is important if you’re interested in the Stock Market.
There are ways to organize companies of all sizes into different titles, though it’s not an exact science.
These titles are given for a reason. So that you can easily determine the size.
So let’s get into the different sizes and what it all means…
What is a “Cap”?
A “cap” is simply a company’s market capitalization.
It’s how you can determine the monetary size.
The larger the company, the larger the market capitalization (or market cap).
Of course, values are always changing with inflation, but there are some actual amounts you can use to figure out the size—at least for now, until inflation changes these definitions again.
Here are some of the different caps and what they mean…
Micro-Cap Companies
Micro caps are basically the smallest companies.
There is such a thing as a nano-cap stock, but the actual monetary size is up in the air. Nano caps are generally going to be your penny stocks. Many micro-cap companies are as well.
Generally, a micro-cap is a company with a market capitalization between $50M and $300M. Anything below $50M could be considered a nano-cap.
Small-Cap Companies
Small caps are a step above micro caps. They generally start around $300M and continue into the $1B or $2B range.
They aren’t huge, but they are somewhat established.
Small-cap stocks can be risky, but they can also generate very high returns if you pick a great business that is growing quickly and has very solid financials. It’s easier said than done, but possible!
Mid-Cap Companies
Now we’re getting into the $2B to $10B range.
Mid-cap stocks are generally safer than small-cap stocks (not always), but the return might not be quite as high since mid-cap stocks have already experienced their fair share of growth.
You may have heard of a few mid-cap businesses, but they’re less popular than large caps.
Large-Cap Companies
Remember the term “blue chip” from the first paragraph? Here they are.
Large-cap stocks are household names. Think Walmart, Intel, General Electric…
Sometimes called big-cap, large-cap are the largest companies—anything over $10B.
Many large-cap companies will be your higher-yielding solid dividend stocks. These are considered your “safe” companies but don’t ever fall for the “too big to fail” theory.
Companies can always fail. Stocks can always lose value. Any company. Any stock.
Final Words
These terms are helpful, but the dollar amounts are by no means specific.
Different investors and companies have their own views of what makes a company large or mid, etc.
Hopefully, you have an idea of what these terms mean now. If nothing else, you know what a blue-chip stock is.
Learn more about investing here.
Photo Credit: Celeste Lindell, David Ingram, Whoohoo120, Reto Fetz