Thursday, January 13, 2011

A Penny Stock Company priced more then Pennies

The term micro cap has at times been used synonymous with penny stock, this is a misnomer. A micro cap company does not have to be traded for pennies. The reverse is true as well, a macro cap company does not have to have a high stock price.

A micro cap is a company can be defined as (1)Companies with market capitalization's between $50 million and $300 million (investopedia) 2 Under $250 million capitalization (investorwords.com) and (3) Micro-cap stock. A micro-cap stock is one with a smaller market capitalization -- sometimes much smaller -- than stocks described as small-caps. (Market capitalization is figured by multiplying the current market value by the number of outstanding shares.)(thefreedictionary.com) .

A company with a small market capitalization could have a stock price of $0.0001 or just as easily have a price of $100.00 per share. Why do company price their stock at more then a penny? Some exchanges have criteria of a minimum trading price per share. For example, at the NYSE, All issuers must have a $4 stock price at the time of listing Source: NYSE
Nasdaq as well have a minimum bid price, at the time of listing, of $4 Source: NASDAQ

Other exchanges have different pricing that a company must keep per share of stock.

In conclusion a micro cap company doesn't have to be priced at a penny. A micro cap with a share price of $5 could easily have micro cap sector returns (extremely high or low ROI). You could see the price go up to $25 in a days trading or down to $0.0001 depending on how small they are. Always look at the market cap, and then the exchange, to determine why the price is the trading at a certain rate. And of course as always, look at management, financial statements, and trading activity & news. Micro caps and penny stocks are a risk (read our disclaimer), do homework and safe investing.

Nicholas Coriano

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