Definition
Mid-Cap, or mid-capitalization, refers to publicly traded companies that have a market capitalization between $1 billion and $5 billion. Market capitalization is calculated by multiplying the company’s current stock price by its total number of outstanding shares. Mid-cap companies are generally considered more stable than small-cap companies and offer greater growth potential than large-cap companies.
Examples
- Etsy, Inc.
- Market Cap: Approximately $1.5 billion
- Sector: E-commerce
- Under Armour, Inc.
- Market Cap: Around $2.3 billion
- Sector: Consumer Goods
- Zillow Group, Inc.
- Market Cap: About $4.8 billion
- Sector: Real Estate Technology
Frequently Asked Questions
What’s the difference between mid-cap, small-cap, and large-cap stocks?
Small-cap stocks have market capitalizations under $1 billion, large-cap stocks have market capitalizations over $10 billion, and mid-cap stocks fall in between, typically ranging from $1 billion to $5 billion. Small-cap stocks are less stable but offer higher growth potential, while large-cap stocks are more stable but have slower growth potential.
Why should investors consider mid-cap stocks?
Mid-cap stocks provide a balanced investment option, offering both growth potential and relatively lower risk compared to small-cap stocks. They often have more established business operations and are in a better position for growth compared to large-cap stocks.
What are the risks associated with mid-cap stocks?
Mid-cap stocks can be more volatile than large-cap stocks because they are still growing and may not have the established market presence. They also face competition from more prominent companies and may have less diversified revenue streams.
Are there mutual funds specifically for mid-cap stocks?
Yes, many mutual funds and exchange-traded funds (ETFs) focus on mid-cap stocks, and they often include ‘Mid-cap’ in their names. These funds enable investors to gain diversified exposure to mid-cap companies.
- Market Capitalization (Market Cap): The total market value of a company’s outstanding shares of stock.
- Small-Cap: Refers to companies with a market capitalization under $1 billion, which are often considered high-risk but offer high growth potential.
- Large-Cap: Refers to companies with a market capitalization over $10 billion, typically more stable and established.
- Mutual Fund: An investment vehicle that pools money from many investors to invest in securities such as stocks, bonds, and other assets.
- Exchange-Traded Fund (ETF): A type of investment fund traded on stock exchanges, much like stocks. ETFs hold assets such as stocks, commodities, or bonds and generally track an index.
Online References
Suggested Books
- “The Intelligent Investor” by Benjamin Graham
- “Common Stocks and Uncommon Profits” by Philip Fisher
- “A Random Walk Down Wall Street” by Burton G. Malkiel
Fundamentals of Mid-Cap Stocks: Investing Basics Quiz
### What is the market capitalization range for mid-cap stocks?
- [ ] Less than $1 billion
- [ ] $5 billion to $10 billion
- [x] $1 billion to $5 billion
- [ ] More than $10 billion
> **Explanation:** Mid-cap stocks have market capitalizations typically ranging from $1 billion to $5 billion.
### Why might investors be interested in mid-cap stocks?
- [x] Balanced potential for growth and stability
- [ ] High volatility and risk
- [ ] Established market dominance
- [ ] Predictable dividends
> **Explanation:** Investors consider mid-cap stocks because they offer a balanced mix of growth potential and stability, unlike the high volatility of small-caps or the slower growth of large-caps.
### Which sector is an example of a mid-cap stock?
- [ ] Microsoft Corporation
- [x] Zillow Group, Inc.
- [ ] Apple Inc.
- [ ] NanoTech, Inc.
> **Explanation:** Zillow Group, Inc. is an example of a mid-cap company, typically with market capitalization around $4.8 billion.
### How is market capitalization calculated?
- [ ] By multiplying revenue by market share
- [x] By multiplying the stock price by the total number of outstanding shares
- [ ] By dividing total assets by total liabilities
- [ ] By multiplying total equity by the P/E ratio
> **Explanation:** Market capitalization is calculated by multiplying a company's current stock price by the total number of its outstanding shares.
### What type of mutual fund might invest exclusively in mid-cap stocks?
- [ ] Large-Cap funds
- [x] Mid-Cap funds
- [ ] Small-Cap funds
- [ ] Balanced funds
> **Explanation:** Mid-Cap funds focus on investing in mid-cap stocks, offering exposure to companies within the $1 billion to $5 billion market capitalization range.
### Which of the following is an inherent risk for mid-cap stocks?
- [ ] No growth potential
- [x] Market volatility
- [ ] Federal government control
- [ ] Guaranteed returns
> **Explanation:** Mid-cap stocks can experience market volatility and competition from larger companies, which impact their stability and risk.
### What financial metric is used to classify whether a company is mid-cap?
- [ ] Net profit
- [ ] Return on Equity (ROE)
- [x] Market Capitalization
- [ ] Price-to-Earnings Ratio (P/E)
> **Explanation:** Market capitalization is the financial metric used to classify companies as mid-cap, and it is calculated based on the company’s current stock price and outstanding shares.
### Mid-cap stocks often provide a blend of which two key investment features?
- [x] Growth potential and stability
- [ ] High risk and guaranteed returns
- [ ] Stability and no growth potential
- [ ] High dividends and zero volatility
> **Explanation:** Mid-cap stocks offer a blend of growth potential and stability, appealing to investors seeking balanced investment opportunities.
### Comparing small-cap, mid-cap, and large-cap stocks, mid-cap stocks typically have:
- [x] Greater growth potential than large-caps but more stability than small-caps
- [ ] Lower growth potential than small-caps and more stability than large-caps
- [ ] The highest volatility and risk
- [ ] No growth potential and maximum stability
> **Explanation:** Mid-cap stocks typically have greater growth potential than large-cap stocks while being more stable than small-cap stocks.
### A mutual fund that explicitly invests in mid-cap stocks might include which keyword in its name?
- [ ] Growth
- [ ] Balanced
- [ ] Small-Cap
- [x] Mid-Cap
> **Explanation:** Mutual funds that specialize in mid-cap stocks often include the term "Mid-Cap" in their names to indicate their investment focus.
Thank you for exploring the definition and fundamentals of mid-cap stocks with our comprehensive guide and challenging quiz questions. Keep advancing your financial knowledge!
