What is Market Cap?

Market capitalization, or “market cap” for short, is a measure of a company’s total value in the stock market. It is calculated by multiplying the number of outstanding shares of a company’s stock by the current market price of one share. Companies are categorized into different groups, such as large cap, midcap, and small cap, based on their total market value.

It is one of the most widely used metrics to gauge the size and value of a company, as well as its overall financial health and stability.

Small Cap vs. Large Cap:

Large cap stocks are shares of typically well-established companies with a market capitalization of over $10 billion. These companies have a long track record of financial stability and profitability, so they tend to be less volatile than small cap stocks. As a result, large cap companies may offer more consistent dividends and earnings growth over time, but may also have limited room for growth, as they have already achieved significant market penetration in their industry.

In contrast, small cap stocks, are shares of companies with a market capitalization typically ranging from $300 million to $2 billion. These companies are generally younger and less established than large cap companies, and they often operate in niche markets or emerging industries. As a result, small cap stocks tend to have higher growth potential but also carry a higher degree of risk, as they may be more susceptible to economic downturns or market volatility.

What are Midcaps?

Midcap equities, often referred to as the middle child, are those that have a market capitalization falling between small cap and large cap companies. Midcap companies are generally defined as those with a market cap between $2 billion and $10 billion. These companies are typically more established than small cap companies creating a lower risk profile, but generally offer more opportunities for growth than large cap companies.

Potential For Higher Returns

• Midcap companies are typically in a stage of growth and expansion, which can provide investors with the opportunity to benefit from future growth potential. These companies have often moved beyond their early stages but still have room for expansion, making them attractive for investors seeking growth opportunities.

Market Inefficiencies

• Midcap stocks may be less closely followed by analysts and institutional investors than large cap stocks. This can result in market inefficiencies and undervalued opportunities, allowing diligent investors to find hidden gems that are not yet widely recognized by the market.

Flexibility & Agility

• Midcap companies are generally more nimble and flexible compared to their larger counterparts. They can adapt to market changes and implement strategies quicker, enabling them to capitalize on emerging trends and opportunities.

Diversification 

• Midcap stocks have a different risk and growth profile than large cap and small cap stocks, providing investors with broader exposure to different market segments.

Growth Potential

• Many midcap companies are in the early stages of growth and have the potential to become large cap companies in the future. By investing in midcaps, investors can potentially benefit from the company’s growth as it increases in size and market share.

Ready to invest in midcaps? Learn more about Cambiar’s SMID strategies and how they can help you take the next step toward unlocking the potential of midcap equities.