| 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. |
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 |