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Question regarding Market Cap
Posted on 1/22/14 at 4:04 pm
Posted on 1/22/14 at 4:04 pm
So I was looking at my yahoo ticker and noticed MSFT ($35.93/share) with a market cap of 299.94B and Hershey ($99.83/share) with a market cap of 22.32B and Staples ($13.82/share) with a market cap of 9.03B, or almost half of Hershey.
Investopedia just taught me that the market cap is price x outstanding shares. I guess first, why does this matter? And secondly, what does/should this tell me about these companies, if anything in regards to investing in them?
TIA and FWIW, this is not a homework assignment.
Investopedia just taught me that the market cap is price x outstanding shares. I guess first, why does this matter? And secondly, what does/should this tell me about these companies, if anything in regards to investing in them?
TIA and FWIW, this is not a homework assignment.
1
Posted on 1/22/14 at 4:17 pm to OnTheBrink
LINK
This should help explain.
Generally though the smaller the market cap the higher risk/reward and the larger the market cap the lower risk/reward.
Large is generally $10billion plus. Medium $1-10billion and small is $1billion and below and then you get into micro/nano caps I guess.
This should help explain.
Generally though the smaller the market cap the higher risk/reward and the larger the market cap the lower risk/reward.
Large is generally $10billion plus. Medium $1-10billion and small is $1billion and below and then you get into micro/nano caps I guess.
This post was edited on 1/22/14 at 4:21 pm
Posted on 1/22/14 at 4:23 pm to lighter345
Thanks for that, the investopedia link I found earlier didn't include the "Why it's important" section.
Another question though, of the examples I gave above, and using
It is safe for me to assume the MSFT is the best of those as far as being "safe", and I use that term loosely? And Hershey is more risky?
ETA another probably incredibly stupid question, but wouldn't someone like MSFT with a high market cap compared to Hershey with a lower one mean that there are way more shares outstanding? And here comes the real stupid part, but could I assume it is because no one wants them?
Another question though, of the examples I gave above, and using
quote:
Generally though the smaller the market cap the higher risk/reward and the larger the market cap the lower risk/reward.
It is safe for me to assume the MSFT is the best of those as far as being "safe", and I use that term loosely? And Hershey is more risky?
ETA another probably incredibly stupid question, but wouldn't someone like MSFT with a high market cap compared to Hershey with a lower one mean that there are way more shares outstanding? And here comes the real stupid part, but could I assume it is because no one wants them?
This post was edited on 1/22/14 at 4:25 pm
Posted on 1/22/14 at 4:35 pm to OnTheBrink
Microsoft and Hersey are considered "Blue Chip" stocks. Blue chip is used for stocks that are considered safe investments that won't grow or decline too much and give off a reliable dividend. Basically stick your money there and don't worry about it. But as we saw in 2008 that isn't always the case.
Generally any large cap that is one of the industry leaders like these will be "Blue Chip" stocks.
Some companies like Microsoft keep their share price at a certain level by splitting the stock when the price gets too high.
Outstanding shares mean shares that the company has issued and are held by outside investors. I don't get what you mean on that one.
Generally any large cap that is one of the industry leaders like these will be "Blue Chip" stocks.
Some companies like Microsoft keep their share price at a certain level by splitting the stock when the price gets too high.
Outstanding shares mean shares that the company has issued and are held by outside investors. I don't get what you mean on that one.
This post was edited on 1/22/14 at 4:38 pm
Posted on 1/22/14 at 4:38 pm to OnTheBrink
One thing to consider when looking at shares outstanding is how many times has it split. Some companies like their share price to stay under a certain amount. When the share price approaches that amount, they will split the stock. If you held 1 share of MSFT on 9/20/87 and did not do anything to it, you would now have 288 shares after all of the splits they have had.
Posted on 1/22/14 at 4:44 pm to OnTheBrink
"The higher the market cap the safer" is generally a nice guideline but it is not a rule. I wouldn't really throw tech stocks in with retail and other sectors. Tech is volatile by nature. Although Microsoft is a relatively "safe" tech stock IMO you'd be wrong in assuming it's safer than Hershey. What you're looking for is the beta of a stock and even that doesn't guarantee you the volatility of a stock moving forward. The beta basically tells you the volatility of a given stock compared to the market as a whole. Below one is less volatile than the market. Higher than one is more volatile.
This post was edited on 1/22/14 at 4:51 pm
Posted on 1/22/14 at 5:21 pm to lighter345
So shares outstanding means shares held? That's where my confusion came in. Thanks for the replies all. If anyone has anything else to add, feel free, the more replies the better!
Posted on 1/22/14 at 5:23 pm to beaverfever
I measure market cap against enterprise value, and also book value per share. As mentioned earlier, stock splits, but also recently, as in this bull market recently, company buy backs of their stock, which they have done a lot in order to meet earnings estimates. It also is somewhat an indicator of liquidity
Posted on 1/22/14 at 6:45 pm to Iowa Golfer
Market cap is essentially where the equity markets value a particular company, and the fairly near term expectations of its earnings.
The larger the market cap does NOT guarantee a safer investment, and it doesn't mean you can't make a lot of money on them. Look at GM and GEs recent histories and you see one large cap file bankruptcy and the othersstock price increase 150% or so since 2008 (guesstimate).
A diversified portfolio of large caps should be less volatile and offer a more consistent dividend and a diversified portfolio of small caps should offer more volatility with less consistent and often smaller div yields..
Nothing is constant or an absolute truth with common stocks.... everything is statistical.
The larger the market cap does NOT guarantee a safer investment, and it doesn't mean you can't make a lot of money on them. Look at GM and GEs recent histories and you see one large cap file bankruptcy and the othersstock price increase 150% or so since 2008 (guesstimate).
A diversified portfolio of large caps should be less volatile and offer a more consistent dividend and a diversified portfolio of small caps should offer more volatility with less consistent and often smaller div yields..
Nothing is constant or an absolute truth with common stocks.... everything is statistical.
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