Market Cap vs. Market Value
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Despite sounding similar, the terms "market cap" and "market value" are not the same. What's the key difference between the two?
Let's define each, then contrast them—so you can know what you're talking about in the US stock market.
What is a market cap?
A company's market cap, or market capitalization, is the value of all the company's stocks combined. You take the number of outstanding shares and multiply it by the current share price.
FYI: An outstanding share is any share currently held by an investor.
A company's market cap can change quickly, but it's usually in one of five categories:
Micro cap: Up to $300 million
Small cap: $300 million to $2 billion
Mid cap: $2 billion to $10 billion
Large cap: $10 billion to $200 billion
Mega cap: $200+ billion plus
As of late September 2021, micro cap stocks include INmune Bio, Inc. (NASDAQ:INMB), Aqua Metals, Inc. (NASDAQ:AQMS), and Sypris Solutions, Inc. (NASDAQ:SYPR). Despite a market cap on the lower end of the spectrum, these businesses all have 2–4 hedge fund holdings. This gives them some stability in the market.
Companies like Amazon (NASDAQ:AMZN), Google (NASDAQ:GOOGL), and Nvidia (NASDAQ:NVDA) are all examples of mega-cap stocks with gigantic market caps. By the end of September, Amazon's market cap was $1.68 trillion.
Market value, defined
Whereas market cap refers to the total value of all a company's stock, market value takes a more narrow approach.
Market value refers to the price of a single share of a company at any given time. A company's market value fluctuates constantly during open market hours, swinging up or down depending on the current landscape of the company and market as a whole.
GameStop (NYSE:GME), the pivotal meme stock of early 2021, rose in market value by more than 1,900% in the first month of the year. Since then, shares have fallen considerably, but the stock's year-to-date gains are still wild. If anything, this just goes to show how quickly a stock's market value can shift.
How market cap and market value are different
Ultimately, the equations that help experts find market cap and market value are different.
For an IPO (initial public offering), companies determine initial market value using price-to-earnings, price-to-sales, and return on equity data. Once a company is public, market value is largely in the hands of the investors who buy and sell the stock.
Meanwhile, market cap is a simple calculation. It comes from the number of outstanding shares X current market value of one share.
In short: Market value refers to the value of a piece of equity, whereas market cap refers to overall value. You can't get to market cap without knowing a company's market value. However, they're not the same thing.
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