Nano-Caps

What It Is:

Nano-cap describes a category of publicly traded stocks that have the smallest market capitalizations in the market place, typically below $50 million.

How It Works/Example:

Market capitalization is a measure of the market value of the outstanding stock of the company in the market place.  It is calculated according to the following formula:

[Number of Share Outstanding] X [Stock Price] = Market Capitalization

For example, if a company has a share price of $.75 and ten million shares outstanding, it is in the category of nano-cap stock with a market capitalization of $7.5 million.

There are several categories of stocks.  The thresholds or breakpoints between each category, (e.g. nano-cap, micro-cap, small-cap, mid-cap, large-cap, and mega-cap) vary among investment advisors and indices. Because these categories measure the market value based on the stock price, they are measures that may change rapidly with the market.   The categories are only intended to give a general idea of the relative size of the company at a particular point in time.

Why It Matters:

Nano-cap companies are usually very small operations and present a high degree of investment risk.  They also typically have a limited history in the market, and, as a result, it is difficult to track their performance.  The best way to understand the quality and performance of nano-caps is to look at the fundamentals of the company, the underlying business operations and sector, and specific assets, performance, and plans for the future.  Since nano-caps are often trading below $1 per share, they will usually be found on the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets.