← Stocks · lesson 6 of 12
By the end of this one you'll know what market cap means, how to tell a company's real size, and why a cheap share price doesn't mean a cheap company.
Market cap is short for market capitalization, and it just means the total price tag on a whole company: the price of one share, one small piece of that company, times how many shares exist. Out here you'd never judge a ranch by the price of one cow. A neighbor with 10 cows worth $2,000 each has a $20,000 herd, while the outfit down the road with 1,000 cows at $1,500 each has a $1.5 million herd, even though their price per head is lower. Companies work exactly like that: a cheap share with billions of pieces floating around can belong to a giant, and a $900 share can belong to a company that cut itself into very few pieces. When folks say large cap they mean a huge herd, a giant company, and small cap means a small one, with mid cap in between. Count the herd and the price per head together, or the number will lie to you.
Same lesson, told by a hundred dollar bill. Tap to walk it one step at a time.
In this example Company A's share costs $500 and there are 1 million shares, so the whole company's price tag is $500 million.
Company B's share costs $5 but there are 1 billion shares, so its price tag is $5 billion, ten times bigger than A.
And here's the part people miss: $100 buys 0.
2 shares of A or 20 shares of B, but either way you hold exactly $100 worth, more shares does not mean more money.
On break, a coworker slides his phone across the table and says look, found a cheap one, five bucks a share. He says the 900 dollar stock everybody talks about is overpriced and this one's the bargain. The microwave hums while everybody waits for you to nod.
Pick your move. Then peek at the other roads if you're curious.
Market cap, the share price times the number of shares, is how you size up the whole herd instead of judging one cow.