In business and investing, term microcap stock (also micro-cap) refers to the stock of

public companies A public company is a company whose ownership is organized via shares of stock which are intended to be freely traded on a stock exchange or in over-the-counter markets. A public (publicly traded) company can be listed on a stock exchange ( ...

in the United States which have a

market capitalization Market capitalization, sometimes referred to as market cap, is the total value of a publicly traded company's outstanding common shares owned by stockholders. Market capitalization is equal to the market price per common share multiplied by ...

of roughly $50 million to $250 million. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. Many micro-cap and nano-cap stocks are traded

over-the-counter Over-the-counter (OTC) drugs are medicines sold directly to a consumer without a requirement for a prescription from a healthcare professional, as opposed to prescription drugs, which may be supplied only to consumers possessing a valid pres ...

with their prices quoted on the OTCBB, OTC Link LLC, or the Pink Sheets. The larger, more established micro-caps are listed on the NASDAQ Capital Market or

American Stock Exchange NYSE American, formerly known as the American Stock Exchange (AMEX), and more recently as NYSE MKT, is an American stock exchange situated in New York City. AMEX was previously a mutual organization, owned by its members. Until 1953, it was known ...

(AMEX). This is true in the US, but by contrast—in

Australia Australia, officially the Commonwealth of Australia, is a country comprising mainland Australia, the mainland of the Australia (continent), Australian continent, the island of Tasmania and list of islands of Australia, numerous smaller isl ...

, for example—nano-cap companies are commonly listed on the

Australian Securities Exchange Australian Securities Exchange Ltd (ASX) is an Australian public company that operates Australia's primary Exchange (organized market), securities exchange, the Australian Securities Exchange (sometimes referred to outside of Australia as, or c ...

(ASX). Microcap stocks are in many ways different from other stocks since they are from companies with a small market capitalization and are usually traded on stock exchanges that do not require minimum standards, such as a minimum amount of net assets or a minimum number of stock holders. In addition, these micro cap stock companies often have fewer resources to make their information available to the public. These micro cap stocks are less likely to be published and talked about by stockbrokers compared to larger public companies. Often, microcap stock companies will specialize in innovative products or services that may be unknown to the general public. In Australia, many of them are junior mining explorers. Micro-cap and especially nano-cap stocks can sometimes experience volatility. Some of these companies fail to execute their business plans and go out of business.

Fraud In law, fraud is intent (law), intentional deception to deprive a victim of a legal right or to gain from a victim unlawfully or unfairly. Fraud can violate Civil law (common law), civil law (e.g., a fraud victim may sue the fraud perpetrato ...

and

market manipulation In economics and finance, market manipulation occurs when someone intentionally alters the supply or demand of a security to influence its price. This can involve spreading misleading information, executing misleading trades, or manipulating ...

are not uncommon and the transaction costs in trading can be quite high. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of

liquidity Liquidity is a concept in economics involving the convertibility of assets and obligations. It can include: * Market liquidity In business, economics or investment, market liquidity is a market's feature whereby an individual or firm can quic ...

—in other words, how many trades are made per day. Investors and finance experts have proposed microcaps can be good investments. David Maley of Ariel Investments argues that ample evidence indicates holding a portion of a portfolio in micro-cap stocks can offer advantages. Micro-caps as a group tend to out-perform stocks from larger companies over time, Daley notes, and micro-caps are not closely correlated with larger company stocks or index funds and thus potentially offset broader market volatility. Furthermore, micro-caps being relatively neglected by analysts offers more potential opportunities for value investors. Similarly, professor Jeremy J. Siegel of Wharton School of Business notes in his book ''

Stocks for the Long Run ''Stocks for the Long Run'' is a book on investing by Jeremy Siegel. Its first edition was released in 1994, and its most recent, the sixth, was so on October 4, 2022. According to Pablo Galarza of ''Money'', "His 1994 book ''Stocks for the Long ...

'' how a review of American stock data from 1926 to 1996 found that the smallest quintile of stocks by capitalization (including micro-caps) outperformed the largest quintile by an average of almost 4% per year. But this over-performance was not consistent, with multi-year stretches of time when smaller company stocks under-performed relative to larger company stock.

References

Stock market {{business-stub

See also

References