Companies with shares trading on the stock markets range from small firms with values measured in millions of dollars to giant corporations worth billions. One way to divide the universe of stocks is by size, or market capitalization. The general categories of small-, mid- and large-cap stocks show you where a company fits into the range of small to big.
Large-cap companies sit at the top of the stock markets in size and investor interest. These firms are widely defined as having a market value of $8 billion or more. Of the thousands of stocks listed on the U.S. exchanges, about 100 companies meet the definition of large cap, as of 2013. However, these firms also make up about half of the total value of all U.S. stocks. Large caps appeal to investors who want to stick with name-brand and sector-leading companies. These stocks are also the most popular in the financial press, so you can find plenty of news and analysis to help with your investment decisions.
A commonly used market-value range for mid-cap stocks is $1 billion to $8 billion. These stocks have traditionally been sort of an after-thought category, since large-cap companies are well known by most investors and the small-cap markets are viewed as the place to find the next big thing in stock investments. About 400 to 600 stocks fit the mid-cap definition. You can dig into the mid-cap listings to find investing prospects that will be the next companies to join the large-cap ranks. But mid-cap stocks are large enough that these companies are at less risk of serious financial problems than smaller ones.
Small-cap stocks have market values of $250 million to $1 billion. There are many more small-cap stocks than mid- or large-cap companies, with about 2,000 stocks fitting between these two market values, as of 2013. Despite the large number of stocks, small caps make up only about 10 percent of the U.S. stock market's value. The small-cap world is where you take more risk to look for the next big thing. There is a limited amount of Wall Street analysis performed on these stocks. The savvy investor may be able to do her own digging for small company nuggets and beat the big boys to the next investment winner.
A company's market size is calculated by multiplying the share price times the number of shares outstanding. Market cap measures the value of a company based on its share value. Because a stock's share price and the overall market indexes can change significantly, a current market cap is a snapshot-in-time valuation. Many mutual funds and exchange-traded funds specialize in stocks in a specific market-cap category. You can use market-cap categories to split up your portfolio based on how much money you want to funnel into speculative versus stable investments.
- Yahoo Finance: Topic -- Large-Cap and Small-Cap Funds Defined
- Fidelity: Balancing Market Capitalization
- Standard & Poor's: S&P 100
- Russell Investments: Russell 2000 Index
- Standard & Poor's: S&P MidCap
- Fidelity. "Understanding Market Capitalization." Accessed August 1, 2020.
- Wilshire. "Wilshire Broad Market Indexes." Accessed August 1, 2020.
- Yahoo Finance. "S&P 500 (^GSPC)." Accessed August 1, 2020.
- Yahoo Finance. "Russell 2000 (^RUT)." Accessed August 1, 2020.
- Yahoo Finance. "S&P Mid Cap 400 Index (^MID)." Accessed August 1, 2020.
Tim Plaehn has been writing financial, investment and trading articles and blogs since 2007. His work has appeared online at Seeking Alpha, Marketwatch.com and various other websites. Plaehn has a bachelor's degree in mathematics from the U.S. Air Force Academy.