Small-Cap Stock
A small-cap stock is a share of a company with a relatively small market capitalization, commonly between a few hundred million and about two billion dollars.
Small-cap stocks are shares of smaller public companies. A common US definition puts them between roughly $300 million and $2 billion in market value, though exact limits differ between index providers. Companies below that range are often called micro caps.
Small companies can grow faster than large ones, because even modest success can make a big difference to their size. Some of today's large companies were once small caps. At the same time, small caps tend to be riskier. They may depend on a few products or customers, have less access to financing and be more sensitive to the economy and interest rates.
Small-cap stocks are usually more volatile and less liquid than large caps, with wider spreads and lower trading volume. They also get less attention from analysts, which some investors see as an opportunity to find overlooked companies.
The Russell 2000 is the best-known benchmark for US small caps, and the S&P SmallCap 600 is another.
Example: a company with 40 million shares at $25 each has a market cap of $1 billion and would generally be considered a small cap.