What is the difference between a low priced stock and a small cap stock?
Best Answer
2183 points
ChaosNantuko answered one year ago …
A small cap stock is stock of a company with a market value below a certain level. Usually it means the total value of the company is between 300 million, and 2 billion. The capitalization of the stock has nothing to do with the number of shares. A low priced stock does depend on the number of shares.
For instance, a company valued at 1 billion would be a small cap stock, yet if it has a total of 10 million shares out, then each share would be worth $100 (share price = market capitalization/outstanding shares). At $100 per share, it isn't a low priced stock. But if the same company had 1 billion shares out instead, then each share would be worth $1. Its the exact same company, each share only represents a smaller portion of the company. in the first instance, with 10 million shares out, its a high priced, yet small cap stock. in the second example, its a low priced, low cap stock. In both cases, the actual companys exactly the same.
Answers
2183 points
ChaosNantuko answered one year ago …
heres an article explaining it...
http://www.investopedia.com/terms/m/marketcapitalization.asp
3943 points
MNSL answered one year ago …
The SEC defines a penny stock as a security that is low priced and speculative. If there was a recession then penny stocks would get a lot more attention since people would have less money to spend. Penny stocks can make you a lot of money if invested in correctly.
Penny stocks are not always as transparent as small caps are. Never invest more money than you are willing to completely lose. There is a high risk in these penny low priced stocks.
According to web site http://www.investopedia.com/terms/s/small-cap.asp,
Small cap refers to stocks with a relatively small market capitalization. The definition of small cap can vary among brokerages, but generally it is a company with a market capitalization of between $300 million and $2 billion. In a small stock market, capitalization for small cap differs from big stock market.
One of the biggest advantages of investing in small-cap stocks is the opportunity to beat institutional investors. Because mutual funds have restrictions that limit them from buying large portions of any one issuer's outstanding shares, some mutual funds would not be able to give the small cap a meaningful position in the fund.
