Microcap stock

Microcap stock

Micro-cap stocks, also known as penny stocks, are a category of stocks that have a small market capitalisation. These stocks typically have a market capitalisation of under US$300 million. Micro-cap stocks are often associated with high-risk investments due to their relatively low trading volume and lack of liquidity. However, they can also offer significant upside potential for investors willing to take on the associated risks.  

What is a microcap stock? 

Microcap stock describes companies with small or “micro” capitalisations having a market value below US$250 million or US$300 million. Typically, the activities and assets of microcap companies are restricted. Microcap stocks often trade in small quantities and at low prices. 

Small companies either in the beginning phases of development or having financial difficulties frequently issue micro-cap stocks. These businesses often need more financial resources and might struggle to obtain capital from conventional sources.  

As a result, they issue shares of stock to raise money on the open markets. Micro-cap companies are often traded on smaller stock exchanges like the OTC Bulletin Board, the Pink Sheets, and the Over-the-Counter (OTC) market. 

Understanding microcap stocks 

Since most microcap companies don’t submit financial reports to the SEC, it can be challenging for investors to learn about the business’ management, goods, services, and finances. When there is a lack of publicly available information, scammers can readily transmit misleading information about microcap companies, generating profits while harming unwary investors. Microcap stocks traditionally have proven to be unstable and less liquid than the shares of more prominent companies, regardless of the absence of fraud. 

Micro-cap stock investing can be very speculative, so it’s essential to fully grasp the dangers before getting started. These stocks are particularly prone to price manipulations and volatility because of their low market size. They are readily swayed by news reports, market rumours, and even SNS speculations.  

As a result, investors must carry out careful research and evaluation before purchasing micro-cap stocks. For investors who are prepared to bear the associated risks and have a good grasp of how they operate inside the US market, these stocks might be an appealing investment choice. 

While some US micro-cap companies could depend on a sizable amount of their income derived from sources outside the US, the majority do all or most of their operations inside the US. This is significant because local businesses that don’t operate abroad are unlikely to be concerned about currency swings or how they affect earnings. 

Benefits of microcap stocks 

The possibility for substantial profits is one of the main benefits of investing in micro-cap companies. These companies have the potential for fast price gain if their outlook improves or if they catch the eye of more prominent investors because they are often cheap and ignored by institutional investors. But it’s crucial to remember that buying micro-cap stocks entails many risks. These equities typically have higher illiquidity levels, making it potentially more difficult to purchase or sell them at a fair price. 

When comparing smaller-cap stocks to larger-cap ones, one finds that micro-cap firms frequently have a more significant insider ownership proportion. As a result, management is more invested in the company’s success, which may help them align their goals with those of shareholders and foster a more supportive culture. 

Microcaps are more likely to be ignored by the overall investing crowd. This offers a unique opportunity for an investor ready to conduct the necessary research. 

Additionally, micro-cap companies frequently lead their industries with cutting-edge technology and products. Investing in these businesses can expose investors to fresh, cutting-edge concepts that possess the ability to upend established markets and sectors. 

Importance of microcap stocks 

Micro-cap stocks are a unique segment of the stock market that offers high-risk and high-reward opportunities for investors. One of the critical reasons why micro-cap stocks are essential is their potential for high returns.  

Micro-cap stocks also improve a portfolio of investments by diversifying it. Investors can lower their total risk by adding these stocks to a portfolio of large-cap and mid-cap stocks. This is due to the poor correlation that micro-cap companies frequently have with more significant equities. Consequently, including micro-cap companies in a portfolio might aid in hedging against market downturns in the overall market. 

Micro-cap stocks boost market efficiency and offer the possibility of significant profits and the benefits of diversity. The availability of these stocks enables the identification of fresh investment prospects and aids in funding potential businesses. This is particularly important for smaller companies needing access to traditional funding sources. These companies can raise capital and finance their growth initiatives by issuing micro-cap stocks. 

Examples of microcap stock 

Consider the case of Netflix. In its early days, when it was still a micro-cap stock, investors who recognised the company’s potential and invested in it saw their investments grow exponentially as Netflix became a global streaming giant. 

Frequently Asked Questions

Microcap stocks refer to companies possessing a market capitalisation of less than US$250 million or US$ 300 million. 


Some of the best microcap stocks include First Western Financial, Nathan’s Famous, IBEX and Ceragon Networks. 

The pros of microcap stocks include the potential for high returns, helping diversify your portfolio, easier access as they are traded on OTC markets and creating undervalued opportunities. 

Conversely, the cons of microcap stocks include less transparency, lower trade volumes, chances of scams, etc. 

Investing in microcap companies is sometimes risky because of their tiny size and minimal liquidity. If the company crashes, there is a bigger chance that you will lose everything you’ve invested. Further, these stocks are occasionally exploited for fraud and scamming. 

When compared to stocks with larger market caps, micro-cap stocks hold the potential to produce better profits. Micro-cap companies offer a better potential for expansion because of their smaller size and systematic underrepresentation in the market. Thus, they can be considered as a good investment. 

    Read the Latest Market Journal

    Writing a Good Will: Avoiding Common Pitfalls (Part 2)

    Published on Jun 13, 2024 18 

    (This article doesn’t apply to foreigners nor our Muslim friends in Singapore.) Welcome to the...

    A Practitioner’s Perspective: Navigating Market Volatility, Uncertainty and Climate Change

    Published on Jun 12, 2024 70 

    In today’s dynamic financial landscape, investors face an array of challenges, including information overload, market...

    Investing in Tech Giants: Strategic Insights into Palantir, TSMC, and Microsoft

    Published on Jun 11, 2024 67 

    In the ever-evolving landscape of technology and data analytics, certain companies stand out for their...

    Weekly Updates 10/6/24 – 14/6/24

    Published on Jun 10, 2024 20 

    This weekly update is designed to help you stay informed and relate economic and company...

    Investing in Gold with Unit Trusts

    Published on Jun 7, 2024 117 

    When gold was first discovered about 4500 years ago, it was valued for its malleability...

    Weekly Updates 3/6/24 – 7/6/24

    Published on Jun 3, 2024 52 

    This weekly update is designed to help you stay informed and relate economic and company...

    World Environment Day – Investing in a greener future

    Published on May 31, 2024 118 

    What is it? World Environment Day is the UN’s largest global platform for environmental public...

    Water: Liquid investment opportunities

    Published on May 31, 2024 41 

    The Singapore International Water Week (SIWW) is a leading global platform for water industry professionals...

    Contact us to Open an Account

    Need Assistance? Share your Details and we’ll get back to you


    This material is provided by Phillip Capital Management (S) Ltd (“PCM”) for general information only and does not constitute a recommendation, an offer to sell, or a solicitation of any offer to invest in any of the exchange-traded fund (“ETF”) or the unit trust (“Products”) mentioned herein. It does not have any regard to your specific investment objectives, financial situation and any of your particular needs. You should read the Prospectus and the accompanying Product Highlights Sheet (“PHS”) for key features, key risks and other important information of the Products and obtain advice from a financial adviser (“FA“) pursuant to a separate engagement before making a commitment to invest in the Products. In the event that you choose not to obtain advice from a FA, you should assess whether the Products are suitable for you before proceeding to invest. A copy of the Prospectus and PHS are available from PCM, any of its Participating Dealers (“PDs“) for the ETF, or any of its authorised distributors for the unit trust managed by PCM.  

    An ETF is not like a typical unit trust as the units of the ETF (the “Units“) are to be listed and traded like any share on the Singapore Exchange Securities Trading Limited (“SGX-ST”). Listing on the SGX-ST does not guarantee a liquid market for the Units which may be traded at prices above or below its NAV or may be suspended or delisted. Investors may buy or sell the Units on SGX-ST when it is listed. Investors cannot create or redeem Units directly with PCM and have no rights to request PCM to redeem or purchase their Units. Creation and redemption of Units are through PDs if investors are clients of the PDs, who have no obligation to agree to create or redeem Units on behalf of any investor and may impose terms and conditions in connection with such creation or redemption orders. Please refer to the Prospectus of the ETF for more details.  

    Investments are subject to investment risks including the possible loss of the principal amount invested. The purchase of a unit in a fund is not the same as placing your money on deposit with a bank or deposit-taking company. There is no guarantee as to the amount of capital invested or return received. The value of the units and the income accruing to the units may fall or rise. Past performance is not necessarily indicative of the future or likely performance of the Products. There can be no assurance that investment objectives will be achieved.  

    Where applicable, fund(s) may invest in financial derivatives and/or participate in securities lending and repurchase transactions for the purpose of hedging and/or efficient portfolio management, subject to the relevant regulatory requirements. PCM reserves the discretion to determine if currency exposure should be hedged actively, passively or not at all, in the best interest of the Products.  

    The regular dividend distributions, out of either income and/or capital, are not guaranteed and subject to PCM’s discretion. Past payout yields and payments do not represent future payout yields and payments. Such dividend distributions will reduce the available capital for reinvestment and may result in an immediate decrease in the net asset value (“NAV”) of the Products. Please refer to <www.phillipfunds.com> for more information in relation to the dividend distributions.  

    The information provided herein may be obtained or compiled from public and/or third party sources that PCM has no reason to believe are unreliable. Any opinion or view herein is an expression of belief of the individual author or the indicated source (as applicable) only. PCM makes no representation or warranty that such information is accurate, complete, verified or should be relied upon as such. The information does not constitute, and should not be used as a substitute for tax, legal or investment advice.  

    The information herein are not for any person in any jurisdiction or country where such distribution or availability for use would contravene any applicable law or regulation or would subject PCM to any registration or licensing requirement in such jurisdiction or country. The Products is not offered to U.S. Persons. PhillipCapital Group of Companies, including PCM, their affiliates and/or their officers, directors and/or employees may own or have positions in the Products. Any member of the PhillipCapital Group of Companies may have acted upon or used the information, analyses and opinions herein before they have been published. 

    This advertisement has not been reviewed by the Monetary Authority of Singapore.  


    Phillip Capital Management (S) Ltd (Co. Reg. No. 199905233W)  
    250 North Bridge Road #06-00, Raffles City Tower ,Singapore 179101 
    Tel: (65) 6230 8133 Fax: (65) 65383066 www.phillipfunds.com