What Is A Micro-Cap Company & How To Invest In Micro Cap Stocks
A micro-Cap company is a small firm whose market capitalization lies between $50 million and $300 million. Most of the firms in this category are newly listed on the stock exchange or small regional companies. The stocks of these companies are often sold over-the-counter (OTC). Microcap stocks are risky investments because there is little information about them in the public domain.
Readiness to take risk
While investing in securities requires the willingness to take risks, micro-cap stocks carry more risk than large-cap stocks. Most of the companies in this category are recently formed and do not have much financial and trading history. Other firms do not have equity ratios because they are yet to generate revenue since their products are at the development stage.
Further, the stocks have low demand, which means investors cannot dispose of them as quickly as they do with large-cap stocks. OTC stocks have no minimal listing standards, so even heavily indebted firms with flawed governance structures can trade. Due to the low volume of securities in the market, a significant sale can have a huge impact on the price.
Investors should be cautious when making investments in microcap stocks because information is not readily available. Sometimes the information is inaccurate or outdated. Further, unlike large-cap securities, very few financial publications research and write on micro-cap companies and their stocks. Investors should be ready to dig deep for information.
Even though small firms are not required to file returns, some of them file under Over-The-Counter (OTC) categories. Check if the firm whose stock you want to buy files returns with the national or state regulator. If it does not file returns, you can still obtain valuable information from other regulatory agencies. For instance, banks must provide financial information to their regulator. You can also find information on a firm’s revenue, products, and credit ratings in commercial databases.
It is preferable to invest in companies whose financial reports are audited by a certified accountant because they are more credible than random statements. Check the company’s management or owners and their corporate history. Ensure that the broker who is dealing in the stocks is registered by the national regulator and licensed to operate in your state.
Besides, watch out for these red flags:
• Brokers with a history of suspensions by regulators
• Firms with many assets but low revenues
• Firms with qualified audit reports and going concerns
• Firms where owners or staff own most of the stock
• Brokers who are over persuasive in selling a particular stock
Investors who make smart bets stand to make handsome gains from their investments. Some of the stocks are destined to become large-cap securities. Diligent investors can tell firms with huge potential by researching their business strategy and products. If you are an expert in micro-cap stocks, Everblu Capital is hiring new dealers. This is an opportunity to work with a reputable investment firm with over 100 years in the securities sector.