They represent shares of companies with a market capitalization between $300 million and $2 billion. Examples of small-cap companies include Lattice Semiconductor, Flexion Therapeutics, and Viant Technology.
Benefits of Investing in Small-Cap Stocks
One of the key benefits of small-cap stocks is their growth potential. Because these companies are smaller and less well-known, they may have more room to grow. If a small-cap company is successful, it can experience explosive growth and generate significant returns for investors.
Another benefit is the potential for undervaluation. Because small-cap companies are less well-known and less widely traded, it can be easier to find a bargain or a great deal on these stocks.
Downside of Investing in Small-Cap Stocks
On the downside, small-cap stocks are riskier than large-cap stocks. Because these companies are less established, there is a higher risk that they could fail or go bankrupt. Additionally, these stocks may be less liquid than large-cap stocks, which can make it more difficult to buy or sell them quickly.