What’s A Microcap Stock?
What Do You Know About Microcap Stocks?
These days we’ve been getting a lot of questions from readers about microcap stocks.
There’s a problem among traders. I think the biggest misconception we have is the difference between microcap stocks, penny stocks, and small stocks…
Don’t you love vocabulary?
Penny stock, small stock, microcap stock… what’s the difference?
Are you ready for a shocker… I’ve got no idea.
And nobody else does either. You see, there’s no “Official” definition for microcap stock, penny stock, or small stock.
Sorry to burst your bubble.
But let me help you understand a few things.
What’s The Price Of A Microcap Stock?
Some people believe a microcap stock is simply a stock that trades for under $5 a share.
Others think it’s a stock trading for under $1 a share.
And just for clarity…
The Securities & Exchange Commission (SEC) defines a penny stock as a stock trading for under $5.
Why $5? No idea. That’s just the number they picked.
What do they say for a microcap stock? Nothing. They don’t talk about microcap stocks much.
Despite their silence, the term microcap stock has spread like wildfire.
Now I know some of you are wondering… is there another way to define microcap stocks?
Microcap Stock Total Value…
There are other ways to value a company, stock price is not the only way.
Some investors define the size of a company based NOT on stock price, but on the value of the entire business.
Theses investors see a microcap stock as any company with a market cap under a certain value.
For example, many investors label companies valued at $300 million or under a microcap stock. That means the stock could trade for $75 a share and still be a microcap stock.
What’s so special about $300 million?
Nothing. Absolutely nothing.
Some use $1 billion and below as the cutoff line. Others use $250 million!
Look, at the end of the day, you can call a stock a small cap, a microcap, or a penny stock…essentially you’re focused on smaller companies flying under the radar of big investors!
So How Do I Define A Microcap Stock?
Don’t fall out of your chair, but for me, a microcap stock, a penny stock, or a small stock are all the same things. For me, they’re companies with a market cap of LESS than $1 billion AND a stock price under $10.
Broad… yes. But it’s what works for me.
However you define penny stocks, remember these kinds of stocks… or any stocks for that matter… are risky. You don’t want to spend your rent money or food money on them. And, while I’m at it… as a general rule of thumb, they should only play a small part of your investment portfolio.
How much is up to you.. but many “professionals” say it should be 10% or less.
So, what do you think… is a penny stock a microcap stock? Does a microcap stock have a market cap under $300 million or $1 billion? Let me know by commenting on the blog.
Good investing…
Brian Kent
Note: If you’re interested in learning more about Brian Kent’s Penny Stock All-Stars premium service… and learning about the stocks we’re trading for profit… you can get the inside scoop on penny stocks here.
Category: Investing in Penny Stocks
