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.
Disclaimer
This article is for educational and informational purposes only. It is not investment advice, nor a recommendation, offer or solicitation to buy or sell any security or digital asset. Investing involves risk, including possible loss of principal. Past performance does not guarantee future results.
Securities brokerage services are provided by Fullerverse (SC) Limited, a securities broker-dealer licensed and regulated by the Financial Services Authority of Seychelles (Licence No. SD152). Fullerverse (SC) Limited is a wholly-owned subsidiary of Raseed Invest Inc. Registered address: House of Francis, Room 302, Ile Du Port, Mahe, Seychelles.
Cryptocurrency services are made available by Raseed Crypto LLC ("Raseed Crypto"), a FinCEN-registered money services business (MSB Registration No. 31000316890439) and a wholly-owned subsidiary of Raseed Invest Inc. Cryptocurrencies are not stocks and your cryptocurrency investments are not protected by either FDIC or SIPC. Cryptocurrency is highly speculative in nature and involves a high degree of risk, including volatile market price swings, market manipulation, flash crashes and cybersecurity risks. Cryptocurrency regulations are continuously evolving, and it is your responsibility to understand and abide by them. Cryptocurrency trading can lead to large, immediate and permanent loss of financial value. You should have appropriate knowledge and experience before engaging in cryptocurrency trading. For additional information, please see our Crypto Risk Disclosures.
Cryptocurrency services are not offered by, and are not available through, Raseed Invest Limited, which is regulated by the Dubai Financial Services Authority. Products and services referenced in this article are not available in all jurisdictions and are not directed at any person in a jurisdiction where their offer or availability would be contrary to local law or regulation.
