3 points to remember while investing in small-cap stocks

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Highlights

  • Small-cap players are associated with higher risk and volatility owing to their lower market capitalization.
  • The small-cap investing approach, when rightly done, can be very fruitful.
  • If a small-cap stock continues to trend upward, it indicates its ability to grow into bigger stock.

 

Small-cap stocks are hard to overlook when talking about growth exposure and associated rewards. These companies are generally young players in the respective industries and smaller in market size (market capitalization) than established companies. If the market environment favours and business dynamics remain positive, these new companies could widely outperform their larger counterparts, which includes mid-cap and large-cap companies.                

But there is a catch that every investor should think of while investing in small-cap stocks: risk appetite. Small-cap stocks are associated with high risk and volatility owing to their small market capitalization, which ranges from C$ 300 million to C$ 2 billion.

When rightly done, the small cap investing approach, based on proper research of a company’s fundamentals and financial and growth prospects, can yield desired results for investors. Hence, investors with risk-bearing abilities might find small-cap stocks an interesting option. However, finding a healthy small-cap stock could be challenging if one is not that well versed in fundamental analysis and market dynamics.

To educate you on small-cap investing and help you pick a quality small-cap stock, Kalkine Media® has come up with the following pointers that investors should remember while evaluating different small-cap stocks:


 


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