Micro Caps

A MICRO CAP STOCK IS a publicly traded company in the United States that has a market capitalization between approximately $50 million and $300 million. Micro-cap companies have greater market capitalization than nano caps, and less than small caps, mid caps, large caps, and mega cap corporations.

Companies with larger market capitalization do not automatically have stock prices that are higher than those companies with smaller market capitalization. Generally, the larger the market capitalization, the less risky the investment and smaller the potential returns. The smaller the market capitalization, the riskier the investment and the greater the potential returns.

Companies with less than $50 million in market capitalization are frequently referred to as nano caps. Both nano caps and micro caps are known for their volatility and as such, tend to be considered more risky than companies with larger market capitalization.

Market capitalization measures the market value of a company’s outstanding shares , calculated by multiplying the stock’s price by the total number of shares outstanding.

At ISWR, we consider micro-caps under $250MM in market capitalization but do not differentiate nano caps from micro caps. Our focus is more on the liquidity of these stocks, the institutional holders if any, and what available research there is on each stock.

As for investing in micro caps, it’s difficult to find much information on the best methods for building positions in these stocks because of their general lack of liquidity. ISWR does not provide individual advice but does believe if you are going to invest in micro caps you should understand how the institutional investors make their micro-cap investments. With this information, it can at least help individual investors make better decisions.

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