• 3 min read
Market Cap: Sometimes size does matter
How a $5 stock can be worth more than a $500 stock.
Explainer
A stock's Market Capitalization (Market Cap) tells you what the entire company is worth.
A bigger market cap usually means a safer investment, but also smaller potential gains.
How to read market cap numbers
Market cap numbers typically fall into three main categories:
- Small-cap ($300M - $2B): Higher growth potential but more volatile and risky
- Mid-cap ($2B - $10B): Balance of growth and stability, often overlooked gems
- Large-cap ($10B+): Stable, established companies with slower but steady growth
There are other categories like micro-cap, mega-cap, and nano-cap, but we're keeping it simple with the three that matter most for everyday investing.
Formula
Market cap is calculated by multiplying the number of outstanding shares by the current stock price.
Let's see this in action with a simple comparison that will surprise you.
Example
This example shows how a $5 stock can be worth more than a $500 stock.
| Company | Outstanding Shares | Stock Price | Market Cap |
|---|---|---|---|
| Company A | 20,000 | $5 | 20,000 × $5 = $100,000 |
| Company B | 100 | $500 | 100 × $500 = $50,000 |
Here's the surprise: Company A is worth twice as much as Company B, even though its stock costs 100 times less. The secret? Share count.
This shows how share count can make a "cheap" stock worth more than an "expensive" one.
See market cap in action
Check out our market cap heatmap to instantly see which companies are giants vs tiny players - all color-coded so you can spot the patterns at a glance.
What market cap does not tell you
Market cap shows company size, but it won't tell you:
- Whether the stock is expensive or cheap
- If the company is actually profitable
- How much debt the company has
How to use market cap in your investments
Understanding market cap helps you make smarter investment decisions:
- Risk assessment: Small-caps are riskier but offer higher growth potential
- Portfolio balance: Mix large-caps for stability with small-caps for growth
- Realistic expectations: Don't expect a $500B company to double as quickly as a $1B company
The math is simple: larger companies have less room for explosive percentage growth, while smaller companies can multiply in value more easily.
The bottom line
Market cap answers a critical question: "How big is this company and what size risk am I taking?"
Never judge company size by stock price alone. A $5 stock could be a massive corporation, while a $500 stock could be a tiny startup. Always check the market cap first.
This makes the difference between looking at stock price and understanding company size.