Companies are often grouped and labelled according to their size: large-caps, mid-caps, and small-caps.
“Cap” is short for “market capitalisation.” This is the term used to describe the value of a public company. To figure out a company’s market cap, you multiply the total number of shares the company has in the market by the market price of a single share.
The group names are common sense. Large caps are large. Small caps are small. Mid-caps are in between.
While the difference between a mid-cap and a large-cap can be huge, the difference between a small-cap and a large-cap can be incredible.
Large caps are good investments particularly for more conservative investors. They’re typically stable, established, profitable companies and often pay dividends.
But if you’re interested in making 3x, 5x, or even 10 times your money, you’d be smart to look at small-cap stocks.
Small = BIG profit potential!
Small-cap companies have much greater potential to produce big returns in a short time than a large cap..
The reason is simple…
It’s much, much easier for a R500 million small-cap to grow 10-fold than it is for a mature R50-billion giant to grow 10-fold.
That’s just basic math.
Or, what about when a small R500 million company creates a hit product that generates an additional R100 million in sales? It’s a huge deal that can make the company’s stock soar!
However, if a R50 billion company creates a way to generate an additional R100 million in sales, it barely registers on its massive income statement.
That’s why a search for stocks with growth potential should start in the small-cap stock world.
There’s another tremendous benefit small cap investors enjoy over large-cap investors
In the investment world, professional investors obsess over “liquidity.” When it comes to buying and selling investments, liquidity is a measure of how easy or difficult it is to transact in a security.
Larger cap companies rarely have trouble with liquidity, since many people like to buy and sell their stocks. On the other side of the spectrum, a company with a R500 million market cap is likely less known, and importantly, ignored by most institutional investors because tis just too small for them to trade it.
In other words, when you “play” in small markets with modest liquidity, you don’t take on the world’s richest, most powerful institutions. And this can tilt the odds in your favour.
Hunting in smaller, less liquid markets – like the small-cap market – is one of the best ways to do that. If you’re eager to start investing in small caps then that’s where Red Hot Penny Shares can help. You can learn more here.
