Lesson 26 of 31 · Zero to reading a chart

Market Cap Explained: A $1 Stock Is Not Cheap

Market cap is the price of one share times the number of shares that exist - the size of the whole company - and it is printed, never worked out; a share's price alone says nothing about how big the company is.

Two stocks. One costs a dollar a share. One costs two hundred dollars. Which company is bigger?

Most people say the two-hundred-dollar one. But the price of one share says nothing about the size of the company.

Remember the slice. A share is one piece of a company.

Cut the company into more pieces, and each piece gets smaller. The company stays the same size.

Think of two pizzas, exactly the same size. The first is cut into four slices. The second, into a hundred.

A slice of the first costs a lot. A slice of the second, very little. Same pizza. The slice price shows how it was cut, not how big it is.

To size the whole pizza, you need two numbers. The price of one slice, and how many slices. Multiply them.

For a company, it is the same. The price of one share, times the number of shares that exist.

That number has a name. Market cap. The price of the whole company, not one piece of it.

Here are two real companies, on the same day. Look at the price scale. Their share prices are nearly the same.

Now look at the number printed under each ticker. The market cap.

One company is more than fifty times the size of the other. Same slice price. A completely different pizza.

Here is the good news. You never work this number out.

It is already printed, wherever you look a stock up. Your job is to read it, and know the bands.

We use five bands. Under fifty million dollars: nano. Fifty million to three hundred million: micro.

Three hundred million to two billion: small. Two billion to ten billion: mid. Ten billion and up: large.

Read the printed number, and find the band. These two land in large, and in micro.

Price times shares is the size of the company.

A high price does not mean big. A low price does not mean cheap.

Here is the mistake. Someone hears a stock is only a dollar, and thinks they found a bargain.

But a dollar is the price of one slice. The company might be cut into a billion of them. Cheap slice. Not a cheap company.

Look up any stock's printed market cap, and say its band.

Then look at its share price. Notice the two have nothing to do with each other.

Check yourself

What is the formula for market cap?

Price times the number of shares.

Is a one-dollar stock cheap?

Not necessarily. That is one slice.

Which band is a five-hundred-million-dollar company?

Small.

Next lesson: not every share that exists is for sale.

For learning only. Not financial advice, not signals, not stock picks.