Large-Value Stock
Categories: Company Valuation
Large-value stock. It sounds pretty simple. Just a stock with a large value. Berkshire Hathaway trading at $311,000 a share. Large-value stock, right?
Not quite. Berkshire might also be a large value stock...but the term has nothing to do with having a particularly large share price.
Instead, the term "large-value stock" combines two concepts. One is the idea of market cap. This stat (short for market capitalization) measures the size of the company's stock float.
Take the total number of shares outstanding and multiply it by the share price. That equation gives you a company's market cap. Large cap stocks are the big shots of Wall Street...the companies with the highest total value of outstanding equity. Berkshire Hathaway has a market cap of about $500 billion. Pretty large cap. Apple and Amazon have topped a trillion. Large as it gets.
The other concept at play is growth vs. value. A growth stock is one where the current finances don't reflect the stock's future value. You are buying shares now on the speculation that it might become something great down the road. A new streaming service that loses a lot of money, but is quickly adding subscribers. Or a biotech firm with a promising medicine working through the FDA pipeline. You're hoping these stocks will skyrocket in value once the market appreciates their potential.
Value stocks present more of a slow burn. They're established companies in mature industries. Your bet is that the stock price doesn't fully reflect the company's intrinsic value. To put it another way, you think the market undervalues what the company offers. Like a dented can of spam in the grocery store value bin...still delicious, but you're getting a great deal.
So a large-value stock is one that is both large cap and value. As opposed to a smaller cap stock, which is a growth prospect. Large cap and value, rather than a stock with a large value.
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Finance: How do you Differentiate Betwee...13 Views
- a la shmoop. how do you differentiate between large-cap mid-cap and small-cap
companies? all right well people it's all about the
cap ,so what is the cap again? no no this cap. that's market cap. market [woman holds graduation cap]
capitalization or rather the value that Wall Street investors are placing on the
company's future earning hours- that's how you kind of value companies right?
well simply put to make categorizing investing in these companies easier,
mutual funds and index funds have somewhat arbitrarily created brackets
for the three different sizes of companies. the presumption runs that
smaller companies carry more risk but grow faster than very large companies.
they're more volatile and they appealed to a certain type of investor. medium
sized companies well yeah there's somewhere in the middle, shockingly. and [3 company sizes listed]
well yeah large cap they don't grow as fast a dividend usually and kind of they
are what they are. so what are the numbers. well this is how they were
created. the first gradation was started at a billion dollars or so and it ended
at about five billion like below a billion it's like a nano cap. or it's a
really small cap company and many companies grow through all three phases
of small medium and large cap. take a Netflix- please for 995 a month they pay
those four to say that. all right well Netflix came public at a valuation of [man speaks to camera]
around 300 million dollars, really small small cap. it then grew and grew and grew
from being a small cap company to a mid cap company when it passed the valuation
of five billion dollars, and then continued growing to the large cap
behemoth it is today at 50 billion plus. Netflix did well. so Netflix generally
kept its number of shares outstanding flat-ish few options there it got that
looted a little bit, and as a stock price rose the market capitalization rose, as
well or said another way investors valued the company more and more highly.
so Netflix graduated from being a small cap to being a mid cap, a half dozen [Netflix logo with stocks and investors pictured]
years or so after it went public, and a half dozen or so years later it
graduated past the twenty five billion dollar threshold to being considered
a large cap company. today and there's another casual class called mega cap
which generally comprises companies with market valuations over a hundred or two
hundred billion dollars. these companies are behemoths like ATT
Apple Amazon and many other companies whose names don't start with the letter
A. so that's it they differ between large mid and small cap companies you'll have
to make like Goldilocks and choose the one that's just right for you. [Goldilocks smiles at three bowls of various sizes on a table]