When I got started in stock trading, the learning curve was steep. Among the many concepts I had to learn, stock market capitalization, risk management, and others were high on the list. When I look back many of these concepts seem simple now, but as a novice trader/investor it’s easy to get overwhelmed. All the same, with time and commitment you can master any topic or skill.
So what is market capitalization?
Investopedia defines it as the total dollar market value of a company’s outstanding shares of stock. What are outstanding shares? How do you figure out their market value?
A few definitions:
Outstanding shares refer to a company’s stock held by all its shareholders.
Restricted shares refer to unregistered shares awarded to the company’s corporate officers. There are special Securities Exchange Commission regulations that govern their sale or transfer.
Share float refers to the company’s shares available for trading on the market. These shares can be transferred, sold and bought without any restrictions.
The Formula?
Market capitalization = current share price * outstanding shares.
Share float = outstanding shares – restricted shares
Tesla stock market capitalization (27th February 2020).
As of 27th February 2020, Tesla’s stock price was 778 (pre-market price rounded off). The company listed its outstanding shares at 183.78M and the share float 146.33M. This puts restricted shares at (183.78-146.33) 37.45M.
Using the market capitalization formula above 778×183.78=142.98B. This gives Tesla a stock market capitalization of $142.98B.
As the stock price fluctuates up or down every trading day, the market cap will fluctuate. This means that the stock price is the main factor that determines how much the market cap changes on a day-to-day basis.
The outstanding shares can also change and result in market cap changes. Though such changes are infrequent.
Below are examples of changes in Tesla’s number of outstanding shares.
Feb 2020- $2 billion common stock offering of 2.65 million shares.
May 2019- $750 million common stock offering of 3.1 million shares.
Coronavirus induced market-wide sell-off.
In the last few weeks, there has been a market-wide sell-off. This is because of the coronavirus pandemic that has hit the world hard. As a result, the most affected countries have shut down their borders. Many people are staying at home following government directives to self-quarantine. The sell-off has been drastic with all the stock market gains under three years of Trump’s presidency wiped out in less than a month. All the major U.S. indices, the Dow 30, S&P 500 and NASDAQ composite are all over 30% down from their February all-time highs. This has wiped out trillions of dollars of investors’ wealth.
Update* Tesla stock market capitalization (20th March 2020)
As of 20th March 2020, Tesla’s stock price was 427 (Friday closing price). The company listed its outstanding shares at 208.31M and the share float 146.07M.
This puts restricted shares at (208.31-146.07) 62.24M.
Using the market capitalization formula above 427×208.31=88.95B. This gives Tesla a stock market capitalization of $88.98B.
In less than a month, Tesla stock has shed $54B in market value.
You can easily track Tesla’s stock market capitalization and other companies on here
Different Categories of Market Capitalization.
Mega-cap– This category includes companies with a market cap of $200 billion and above. Examples are Amazon, Apple, and Microsoft, which all have achieved a trillion-dollar market cap at one point or another.
Large-cap– This category includes companies with a market cap that lies between $10 billion and $200 billion. Examples are Tesla, Boeing, McDonald’s, and eBay.
Mid-cap– This category is for companies with a market cap ranging between $2 billion to $10 billion. Examples are Kinross Gold, Dunkin Brands, Nordstrom, Harley-Davidson, and Macy’s Inc.
Small-cap-This category includes companies with a market cap that lies between $300 million and $2 billion. Examples are United States Steel, Bed Bath&Beyond, Office depot, Clovis, and Atlas Air.
Micro-cap– This category includes companies with a market cap ranging between $50 million to $300 million. Most of the penny stocks fall in this category. Examples are JC Penny, Akorn, Novavax, Noble Corp, and GameStop Corp.
Nano-cap– This category includes all companies with a market cap below $50 million. Examples are Yuma Energy Inc, DPW, Sellas Life Sciences, and Bio-Path Holdings.
Conclusion
It is important to equip yourself with the right knowledge and skills. This will increase your chances of success in the financial markets. The stock markets have been on a rough ride during the coronavirus pandemic. But at one point things will turn around and get better. Successful investors and traders are always prepared to tackle any challenge the market throws at them. To do this they ensure that they have access to the right tools at all times.
A great tool to empower you on your quest to conquer financial markets is Finviz Elite.
Its market-leading stock screener and back-testing technology will put you far ahead of the rest of the pack.