Small-cap stocks: Definition, examples, and evaluation - Business Insider

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What is a small-cap stock? A company worth under $2 billion with massive growth potential for investors

, it works both ways. If a mid-cap or large-cap company sees economic and business challenges that cause them to lose value, they can become small-caps.

Because they're often expanding fast, you'll often see the biggest price gains coming from companies in the small-cap category — as a group, small-caps tend to perform well, But betting on any individual company is especially risky. Many small-cap companies never quite make it off the ground or fulfill their early promise. What are small-cap stocks?

Market capitalization is the total dollar value of all a company's stock. A small-cap stock is generally classified as one whose market cap is between $300 million and $2 billion. It's a diverse group, in several ways. For one thing, companies within it belong to a variety of industries, ranging from the traditional to the high-tech. Many focus on a particular niche within a sector.Eventbrite, the event management SaaS companyRhythm Pharmaceuticals, a drug manufacturer Because of their potential for substantial appreciation, small-cap stocks often overlap with growth stocks — companies on a fast track, who are outperforming the market overall in terms of return.

But they're not all bright young things. Some are "fallen angels," as the financial pros like to say — once larger companies whose revenues have waned of late. Some may have shrunk deliberately, to better focus on their core business or a particular market. But some may be struggling or even on the brink of bankruptcy.Small-caps are a highly varied group, but they tend to share some similarities.These companies are often limited in size or outreach or both.

 

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