Small-cap stand for “Small market capitalization”. Market Capitalization is the estimation of a company’s value or size through multiplying the number of shares outstanding times the share price of the stock. An example of this would be to look at Consol Energy- a Small-cap company. Consol Energy has 230 Million shares of stock priced at $16.95 as of market opening on October 3rd. This puts them at a market valuation of 3.8 Billion dollars. Small cap stocks are shares of a company with a market capitalization value range of about $300 million to $2 billion.

Small cap companies are not necessarily “small”, they are established companies but dwarfed in comparison to larger companies like Coca-Cola and Facebook. So why own small-cap stocks? Small-cap stocks offer more opportunity for growth as they increase their product or service and are growing their market share. Small caps do offer high growth potential although they can be susceptible to market swings. This can be an advantage when the market is up, but a disadvantage when the market is down because they are more susceptible to the negative changes in the market as well as the positive, so more risk is involved.

Many small cap companies create components for larger companies, such as computer parts or automobile parts. Guidewire Software (GWRE) is one example that provides property and casualty software insurance to industries. Another example is Inogen (INGN) which is a medical technology company which develops and manufactures portable oxygen concentrators that provide oxygen therapy to patients suffering from chronic respiratory conditions. Other examples of Small-cap companies are Sonic(SONC), Federated Investors(FII), Chipotle(CMG), and Papa John’s(PZZA).

Written by: ||lauren pearce, associate||