What are Nano Caps?
A nano cap is a company with the smallest market capitalizations in the market place, typically below $50 million.
How Do Nano Caps Work?
Market capitalization is a measure of the market value of the outstanding stock of the company in the market place. It is calculated according to the following formula:
[Number of Share Outstanding] X [Stock Price] = Market Capitalization
For example, if a company has a share price of $.75 and ten million shares outstanding, it is in the category of nano-cap stock with a market capitalization of $7.5 million.
There are several categories of stocks. The thresholds or breakpoints between each category, (e.g. nano cap, micro cap, small cap, mid cap, large cap, and mega cap) vary, depending on who you're talking to. Furthermore, because these categories measure the market value based on the stock price, they may change rapidly with the market. The categories are only intended to give a general idea of the relative size of the company at a particular point in time.
Why Do Nano Caps Matter?
Nano-cap companies are usually very small operations and present a high degree of investment risk. They also typically have a limited history in the market, and, as a result, it is difficult to track their performance. The best way to understand the quality and performance of nano caps is to look at the fundamentals of the company, the underlying business operations and sector, and specific assets, performance, and plans for the future. Since nano caps often trade below $1 per share, they will usually be found on the Over the Counter Bulletin Board (OTCBB) or the Pink Sheets.