What are small cap stocks?
Small cap stocks are generally stocks issued by businesses that have a market capitalization of between three hundred million dollars to two billion dollars ($300million-$2billion). These stocks have good growth potential, making them an appealing investment option to investors who are willing to take on the associated risks.
Small cap stocks are part of the many different kinds of stocks. Additional stock types include blue chip, treasury, penny, common, convertible, noncumulative, participating, preferred, cumulative, growth, dividend, value, etc. Here, our focus shall be on what small cap stocks are. We shall also look at a list of small cap stocks as well as examples of some companies that issue these stocks.
It is well known that every big company; those currently classified as large-cap were once small-cap, therefore, it goes without saying that small cap stocks have the potential of becoming large-cap stocks too. The classification of a company’s stock as small, mid, or large-cap is dependent on the company’s market cap. It is therefore pertinent to understand what market cap means.
What is the market cap?
Market cap is short for market capitalization. It is the product of the current price of a company’s stocks and the total number of its outstanding stocks. it is expressed as:
Market capitalization = Current stock price x Total outstanding stocks
From the above, we can see that the stock price, as well as the total number of outstanding stocks a company has, are what determine its market capitalization. Simply put, the market cap tells the investor what the market thinks the value of the company should be and not necessarily the company’s real value since it does not take the assets and liabilities of the company into consideration.
Market capitalization data for any publicly traded company can be easily obtained on any website that provides stock information in real-time. Organizations that calculate and distribute shares and other asset class indices which provide a benchmark for various sectors otherwise known as index providers also use market capitalization to decide which companies qualify to become part of their benchmark.
The major index providers are:
The S&P Dow Jones Indices have an index known as S&p SmallCap 600 which tracks the performance of 600 small cap stocks. Its median market cap as of December 31, 2021 was $1.58 billion
The FTSE Rusell index also has an index known as Rusell 2000 which tracks the performance of 2000 small cap stocks. Its median market cap as of May 6, 2022, was $1.1 billion
Categorizing a company based on its market cap is liable to change over time as what was considered a large cap in the 1900s might be considered a small cap now due to globalization, expansions, population growth, and many other factors thereby making categorization based on market cap quite subjective. Furthermore, it may vary from one broker to another but the generally accepted categories currently are as follows:
|Nano cap||Lesser than $50 million|
|Microcap||$50 million – $300 million|
|Small cap||$300 million – $2 billion|
|Mid-cap||$2 billion – $10 billion|
|Large-cap||$10 billion – $200 billion|
|Mega-cap||Above $200 billion|
Small cap stock list
- BIT Mining Ltd – ADR
- Northwest Natural Holding Co
- Alamo Group, Inc.
- Monro Inc
- Listed above are some stocks of companies that are small cap.
- Lindsay Corporation
- iRobot Corporation
- World Fuel Services Corp
- InterDigital Inc
- Harsco Corp
- Hope Bancorp Inc
- Anywhere Real Estate Inc
- Cara Therapeutics Inc
- Hibbett Inc
- Green Plains Partners LP
- Enova International Inc
- NOW Inc
- Digi International Inc.
- Cutera, Inc.
- Astec Industries, Inc
Examples of small cap stocks
Within the table below, we shall take a look at some small cap companies, and their market capitalization amongst other things.
|Market||Company||Ticker symbol||Market cap ($)||Stock price ($)|
|NYSE||Aaron’s Company Inc||AAN||400.10 million||12.97|
|NASDAQ||Carparts.Com Inc||PRTS||418.51 million||7.82|
|NASDAQ||Gevo Inc||GEVO||559.78 million||2.79|
|NYSE||B&G Foods Inc||BGS||1.69 billion||24.83|
|NASDAQ||Dmc Global Inc||BOOM||413.15 million||21.28|
|NYSE||Washington Real Estate Investment Trust||WRE||1.94 billion||22.19|
|NASDAQ||Midland States Bancorp Inc||MSIB||589.09 million||26.71|
|NYSE||SunCoke Energy Inc||SXC||608.68 million||7.30|
|NASDAQ||Perion Network Ltd Common Stock||PERI||837.79 million||18.86|
|NASDAQ||Zynex Inc.||ZYXI||311.85 million||7.99|
|NYSE||Vista Outdoor Inc||VSTO||1.71 billion||30.32|
|NASDAQ||Xencor Inc||XNCR||1.69 billion||28.38|
|NASDAQ||Hanmi Financial Corp||HAFC||766.43 million||25.18|
|NYSE||Titan International Inc||TWI||1.03 billion||16.49|
|NASDAQ||Diversified Healthcare Trust||DHC||429.10 million||1.80|
|NASDAQ||B Riley Financial Inc||RILY||1.47 billion||52.59|
|NYSE||Proto Labs Inc||PRLB||1.34 billion||48.88|
|NASDAQ||Sinclair Broadcast Group Inc||SBGI||1.56 billion||22.08|
|NASDAQ||OSI Systems, Inc.||OSIS||1.64 billion||96.06|
|NASDAQ||ACM Research Inc||ACMR||961.37 million||16.25|
Features of small cap stocks
- Growth potential.
- Low liquidity.
We shall have a brief look at the features of small cap stocks. These features are the differentiating factors between them and stocks that are in other categories.
Small cap stocks have the potential to grow, this means the stock price could appreciate especially when the issuing company grows too over time through building a good reputation, having a good financial standing as well as expanding its reach.
These stocks are considered risky since they tend to experience more business uncertainty since their issuing companies are mostly in their early stages.
Small cap stocks are liable to rapid increases and decreases in price which means they are easily affected by market forces. An unstable economy might also spell doom for these stocks.
Just like penny stocks, these stocks also have low liquidity, which means they might be difficult to sell because they do not trade as frequently as stocks from more established companies.
Small cap vs large cap
We have already taken a look at what small cap stocks are, here, we shall compare these stocks with large-cap stocks. Large-cap stocks are stocks that are issued by companies that are quite well established, usually, their market cap ranges between $10 billion to $200 billion. Apart from the obvious difference which is in their market cap, we shall look at additional differences within the table below
|Market cap||$300 million – $2 billion||$10 billion – $200 billion|
|Stage in business||Early stage/still growing||Matured/already grown|
|Volatility||Very volatile||Less volatile|
|Information||Scant information||Readily available|
|Operational domain||Mostly domestic||Usually global|
|Products and services||Usually one||Mostly diversified|
Small cap vs mid cap
Mid-cap stocks are those stocks whose issuing companies have a market capitalization of approximately $2 billion to $10 billion. Small cap stocks, on the other hand, have a market cap of approximately $300 million to $2 billion making them rank just below the mid-cap stocks. Within the table below, we shall further look at some additional differences.
|Market cap||$300 million – $2 billion||$2 billion – $10 billion|
|Stage in business||Early stage/still growing||Mid-stage|
|Volatility||Very volatile||Less volatile|
|Information||Scant information||More available|
|Operational domain||Mostly domestic||Both domestic and international|
|Products and services||Usually one||Quite diversified|
Frequently asked questions
What is the market cap of small cap stocks?
The market capitalization of small cap stocks is between $300 million to $2 billion.
How much should I invest in small cap stocks?
The amount you should invest in small cap stocks depends on how much you are willing to risk as the investment can be beneficial if the stock appreciates in price and it can be detrimental if the stock price falls or remains stagnant.
What is considered a small cap stock?
Currently, a small cap stock is any stock issued by a company whose market capitalization is between $300 million to $2 billion.
What is the definition of small cap stocks?
Small cap stocks can be defined as stocks that are issued by companies with a market capitalization of approximately three hundred million to two billion dollars ($300 million – $2 billion.)
Who are the index providers?
There are four major index providers, these are:
2. S&P Dow Jones indices
4. FTSE Russell
Additional providers include CRSP, Solactive, and Morningstar.
The current mid-cap, large-cap, and mega-cap stocks were all small cap stocks at some point, this goes to show that the current small cap stocks have the potential of growing to become any of these stocks in the future. Investing in small-cap stocks can be rewarding, especially if the company experiences growth. Conversely, it can be daunting if the company fails to grow, it is therefore important to research personally before deciding on what stocks to purchase. Note that there might be less information available on small-cap stocks as compared to the other more established stock types.
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