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A Company’s Stock Price May Have Very Little to do With The Size of Company

I think there is this common misconception that must be addressed for those that don’t have any interest in “the market.”  A Company’s stock price on a particular day does not provide information in of itself of the size of the company.  An easy example:

  1. Stock 1 – Closes at $608.21 on July 10, 2012
  2. Stock 2 – Closes at $124,985 on July 10, 2012
  3. Stock 3 – Closes at $648.65 on July 10, 2012

Which Company is “worth more”? If you guessed Stock 2 or 3 you are wrong.

  • Stock 1 is Apple – One of the largest (if not the largest) company in the world in terms of market cap
  • Stock 2 is Berkshire Hathaway – Despite being infinitely more expensive to buy one share the company is worth less than half of Apple
  • Stock 3 is Priceline – Priced more than Apple PCLN is less than one tenth of the size

How could any of this make sense?

What is a Company’s Market Capitalization?

Investopedia provides a good definition of Market Capitalization,

The total dollar market value of all of a company’s outstanding shares. Market capitalization is calculated by multiplying a company’s shares outstanding by the current market price of one share. The investment community uses this figure to determine a company’s size, as opposed to sales or total asset figures.

So keeping with our example above,

  • Apple with a stock price around $600 has a market cap of over $563 Billion
  • Berkshire Hathaway with a stock price of around $125,000 has a market cap of about $205,600,000,000
  • Priceline with a stock price of about $650 has a market cap of about $31 Billion

You can buy a share of Facebook for around $30 bucks but the company is valued at about $100 Billion!

Market Cap and Investing

When investing there are distinctions between market cap and investment groups:

  • Large Cap: $10 billion plus
  • Mid Cap: $2 billion to $10 billion
  • Small Cap: Less than $2 billion

It always amazes me that a company worth less than $2Billion is considered “small” lol.

Just like all topics of value and worth just because something is expensive doesn’t mean it is a good buy.

Did this topic ever confuse you?



  1. I agree with you – I wish I had a “small cap” business. haha. The stock market is an interesting system.

    • Seriously! Even a tiny publicly traded company on the pink sheets is large in terms of market cap (but maybe not profit lol)

  2. Ha! Small size business, but it’s publicly traded. Anything that is publicly traded is big in my mind.

  3. I agree with Jenna. Small to us but they are publicly traded which is quite a feat. Definitely good information for those that don’t know about market capitalization.


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