A stock that is issued by a company with a market capitalization ranging between $50 and $2 billion. This stock is riskier than a small-cap stock. Though the opportunity for micro-cap companies to achieve extreme growth is great, holding their stocks is possibly with the risk to lose a large amount of money.
Micro-cap stocks could also refer to penny stocks, i.e., small, relatively new companies, which offer one product or perhaps have only a single market and are typically traded at less than $8 per share. Micro-cap stocks are much smaller than their small-cap and large-cap counterparts. Also, they are cheaper on a price to book basis. The lower valuation underpins the untapped potential of micro-cap stocks that receive less investor interest and analyst coverage. Furthermore, book value tends to be a very simple valuation technique for micro-cap companies as such companies tend to finance operations without depending on as much debt as larger-cap companies.
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