The Importance Of Market Cap

If the video does not load after a few moments,
Upgrade to the Latest Flash Player.

In the latest look at stocks ordered by largest market capitalization, Russell 3000 component Polaris Industries Inc. (NYSE:PII) was identified as having a larger market cap than the smaller end of the S&P 500, for example H & R Block, Inc. (NYSE:HRB), according to The Online Investor. Click here to find out the top S&P 500 components ordered by average analyst rating

Market capitalization is an important data point for investors to keep an eye on, for various reasons. The most basic reason is that it gives a true comparison of the value attributed by the stock market to a given company’s stock. Many beginning investors look at one stock trading at $10 and another trading at $20 and mistakenly think the latter company is worth twice as much that of course is a completely meaningless comparison without knowing how many shares of each company exist. But comparing market capitalization (factoring in those share counts) creates a true “apples-to-apples” comparison of the value of two stocks. In the case of Polaris Industries Inc. (NYSE:PII), the market cap is now $5.13B, versus H & R Block, Inc. (NYSE:HRB) at $5.12B.

Start slideshow:

The 20 Largest U.S. Companies By Market Capitalization

Below is a three month price history chart comparing the stock performance of PII vs. HRB (Note that we have found 4 splits in the PII split history):

Another reason market capitalization is important is where it places a company in terms of its size tier in relation to peers much like the way a mid-size sedan is typically compared to other mid-size sedans (and not SUV’s). This can have a direct impact on which indices will include the stock, and which mutual funds and ETFs are willing to own the stock. For instance, a mutual fund that is focused solely on Large Cap stocks may for example only be interested in those companies sized $10 billion or larger. Another illustrative example is the S&P MidCap index which essentially takes the S&P 500 index and “tosses out” the biggest 100 companies so as to focus solely on the 400 smaller “up-and-comers” (which in the right environment can outperform their larger rivals). And ETFs that directly follow an index like the S&P 500 will only own the underlying component of that index, selling companies that lose their status as an S&P 500 company, and buying companies when they are added to the index. So a company’s market cap, especially in relation to other companies, carries great importance, and for this reason we at find value to putting together these looks at comparative market capitalization daily.

According to the ETF Finder at ETF Channel, PII and HRB collectively make up 1.05% of the First Trust Mid Cap Value AlphaDEX Fund ETF (FNK) which is lower by about 0.2% on the day Friday.

See what other ETFs contain both PII and HRB

See what other stocks are held by FNK

At the closing bell, PII is up about 1%, while HRB is up about 0.4% on the day Friday.

Top Six Most Viewed Stories This Week @ Market News Video:

This Article’s Word Cloud:

error: Content is protected !!