| designating a company, or a mutual fund that invests in companies, with a market capitalization of under $1 billion: considered to have more growth potential and higher investment risk. |
| a capital letter of a particular font, the same height as the x-high letters. |
| small cap adj.
[small + cap2.] |
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.
Investopedia Commentary
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. To overcome these limitations, the fund would usually have to file with the SEC, which means tipping its hand and inflating the previously attractive price.
Keep in mind that classifications such as "large cap" or "small cap" are only approximations that change over time. Also, the exact definition can vary between brokerage houses.
Related Links
What Is A Small Cap?
Introduction to Small Caps
Market Capitalization Defined
The Great Gap
See also: Large Cap, Market Capitalization, Mega Cap, Micro Cap, Mid Cap, Nano Cap, Outstanding Shares, Russell 2000 Index, Secondary Stock
Also spelled: small-cap, smallcap
small-cap
Of or relating to the common stock of a relatively small firm having little equity and few shares of common stock outstanding. Small-caps tend to be subject to large price fluctuations; therefore, the potential for short-term gains and losses is great.
Of or relating to mutual funds that invest in the stock of small-cap companies. See also microcap.
How can I determine whether a small-cap stock is reasonably valued? A reasonably valued small-cap stock should be a company that has the potential to increase its earnings at a rate higher than the general growth of the economy. Because small-cap stocks generally have unusually high price-earnings ratios, the investor needs to look at each stock individually and compare its price-earnings ratios with the average price-earnings ratio of the appropriate small-cap stock index, such as the Russell 2000.George Riles, First Vice President and Resident Manager, Merrill Lynch, Albany, GA |