Is There A Difference Between Micro Cap Stocks and Penny Stocks?
March 10th, 2010 at 8:46 am Posted by
To answer this question we first need to understand what both of these types of stocks actually are.
The ‘cap’ referred to in the micro cap stock example is short for capitalization. When people talk about a particular business they may talk about the market capitalization of it. This refers to the monetary value of the business. Anyone can work this out by finding out just two pieces of essential information – firstly the number of shares it has in total, and secondly the value of each of those shares. Multiplying them together will give you the market capitalization value.
So, micro cap stocks refer to a business that has a low market capitalization value. As such the shares will tend to be priced quite low – sometimes less than a dollar – and the company and its shares won’t make too many headlines as a result.
While many people haven’t heard about micro cap stocks, they will probably have heard about penny stocks before. As the name suggests, penny stocks are cheap stocks that many times come in at under a dollar in price per share. However they can be priced higher than that; you might see a penny stock coming in at as much as $5 per share.
You can see then that a penny share is concerned primarily with the value of each individual share. Penny shares do not directly have anything to do with the market capitalization of the company that holds them. Micro cap stocks are different because this points to a company that has a relatively low value when it comes to its place in the world.
The one thing you need to think about with both types of investment is how the company is geared up to develop in the future. A micro cap company isn’t likely to have much in the way of assets, particularly not when compared to a large cap company. It is very important not to get swayed by the fact that a company has millions of shares. It isn’t just the number of shares it has, it is the amount they are worth, which is relevant as well.
So think carefully if you want to invest money in either of these types of stock. They both have one thing in common, and that is the fact that they are very risky. You could make big profits, but losses could also be in the cards.
