When Do Stocks Become Mature?

When Do Stocks Become Mature?
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Because it represents ownership in an underlying company, the maturity of a stock depends on the fundamentals of the business. Certain metrics exist to assess a company from this perspective, and analyzing a number these factors will allow an investor to determine the level of maturity of a publicly traded corporation.

Market Capitalization

Market capitalization is one method of determining the market value of an enterprise. Multiplying the price of the stock by the number of shares outstanding generates the market capitalization of a company. This value can sink to zero or soar without limit, but typical numbers start above $1 million and range up to $200 billion or more. Depending on the nature of the business, analysts consider large-cap stocks to be mature along with some larger mid-cap stocks. A common threshold to classify a stock as mature is $10 billion or greater market cap.

Industry Leadership

The best and strongest companies within an industry present themselves as market leaders by consistent performance and long-term growth. These leaders tend to be well-known companies that have a lengthy history doing quality business. One way to identify such corporations is through performing a market analysis, listing companies by industry in descending order of market capitalization. The top large-cap companies on the list could be considered mature, as they are leaders in their industry.

Maturity of Industry

Industry also plays a role in labeling a stock as mature. An individual company might be the strongest player within their industry, but because the industry itself is still in infancy, the enterprise has not yet developed to the point of long-term stability. An example of such an industry is environmental, or green, technology which is growing and may continue to prove strong in the future, but is not so well-established as industries like oil and gas or residential construction. When looking for mature stocks, focus on existing industries instead of new and upcoming ones.

Dividend Payout

Few young companies, with certain notable exceptions like real estate investment trusts, immediately begin to issue dividends as they prefer to re-invest their earnings into business growth. Over time, businesses with excess cash holdings may choose to pay dividends to stock holders instead of pursuing re-investment growth strategies. A track record of dividend payments can be an indication that a firm has reached a level of maturity and stability. This principle is not a set rule, however, as some mature companies never choose to issue dividends and some young companies may be required by law to do so.