I know, most of the investor only invest in the stock by judging the current market price of the stock. They evaluate the stock on the basis of stock price only. They ignore Market Capitalization of the stock at the time of Stock Purchase.
Is less price stock is valuable?
New Investor or Retail investor of the stock market always prefer for the less Price Stock, they always ask stock bellow Rs 100 or even Below Rs 50 for the Investment.
As per them, a less priced stock will grow more than the high priced stock. And finally, they close their Demat Account due to the loss in the Market.
I never Seen a single investor made money, who invested the Stock by evaluating the stock by price.
To evaluate a stock you must consider below parameter for a better investment.
- Market Capitalization of the Company
- P/E Ratio
- Debt of the Company
- Profit margin
A market capitalization of the Company is a parameter which describes the width of the company and how much money already deployed in stock for the company.
Market Capitalization = Stock Price * Number of Shares
Only Stock price can be changed every day with a constant of Number of Shares. So, if the Share price goes up, definitely Market capitalization will simultaneously go up.
Changing in Share price will change the Market Capitalization of the company.
Market Capitalization defined the Size of the company. By the use of Market Capitalization method, in the stock market, shares are divided into the groups of Large Cap, Mid Cap, and Small Cap.
How to use the Market cap at the time of Stock purchase?
Less market cap means there is a chance of higher return than the other company.
As an Example, you can invest a company having market Cap of 500 Cr is better than the company Market cap of 50,000 Cr. A stock price of Rs 500 Cr company will move fast if it satisfies other parameters.
Market Cap also points out the risk factor to the Investor. Stocks having less market cap is always riskier than a higher market cap.
But it is compulsory that, you must evaluate other parameters at the time of research.