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Why Micro Cap Stocks Can Create Greater Returns

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The Capitalization of Micro Cap Stocks

Micro CapMicro cap stocks earn their name from the amount of their market capitalization. This term refers to the total value of all of a company’s publicly traded shares. You can calculate this number by simply multiplying the total number of shares by their per-share value. This amount does not include preferred shares.

Micro cap stocks are issued by companies with a market capitalization of less than $300 million. This may sound like a lot but many mid cap and large cap stocks come from companies with billions of dollars in market capitalization. Companies with less than $50 million in market capitalization are another class of stock altogether.

Investing in Micro Cap Stocks

Many investors avoid micro cap stocks. They do not think that these stocks are worthy of investment or they imagine that they are too risky or unproven. There is some truth to this.

However, there are also unusual opportunities in these stocks. Their share prices are normally quite low. Some of them may even be penny stocks. This small size gives them an unexpected ability to make fantastically huge returns on an investment.

If you buy a micro cap stock for just two dollars per share, you can buy many more of them than if you had spent the money on a mid cap stock for $20 per share. When both shares experience an equal surge in stock price, the results for the micro cap stock are incredible.

Imagine that you own 5,000 shares of the micro cap stock after investing $10,000. A ten-cent increase in stock value nets you $500 with the micro cap investment. The other investment earns you just $50. The differences with micro cap investments are in their ability to create great returns for you.

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