Yet the dilemma Casper faces is it's limited in its response to an inflationary market. Rising costs for raw materials, freight, and labor are hampering its ability to meet the record demand it is experiencing for its bedding. But it's not necessarily the company's fault.Ĭasper is suffering from the inflationary pressures impacting the economy, as well as the supply chain constraints caused by the massive congestion at global shipping ports. Admittedly, losses at the bedding specialist dramatically widened to $33.8 million from $24.9 million last year, and management expects it won't get any better in the third quarter, as losses will come in at as much as $0.55 per share (Wall Street was expecting a loss of just $0.21 per share). There's a good case to be made that Casper Sleep shouldn't be so severely punished for its recent performance. But this over-performance was not consistent, with multi-year stretches of time when smaller company stocks under-performed relative to larger company stock.Image source: Getty Images. Siegel of Wharton School of Business notes in his book Stocks for the Long Run how a review of American stock data from 1926 to 1996 found that the smallest quintile of stocks by capitalization (including micro-caps) outperformed the largest quintile by an average of almost 4% per year.
Furthermore, micro-caps being relatively neglected by analysts offers more potential opportunities for value investors. Micro-caps as a group tend to out-perform stocks from larger companies over time, Daley notes, and micro-caps are not closely correlated with larger company stocks or index funds and thus potentially offset broader market volatility. David Maley of Ariel Investments argues that ample evidence indicates holding a portion of a portfolio in micro-cap stocks can offer advantages. Investors and finance experts have proposed microcaps can be good investments. Pricing is more likely to be inefficient, since fewer institutional investors and analysts operate in this space, due to the relatively small dollar amounts involved and the lack of liquidity. Fraud and market manipulation are not uncommon and the transaction costs in trading can be quite high. Some of these companies fail to execute their business plans and go out of business. Micro-cap and especially nano-cap stocks can sometimes experience volatility. Often, microcap stock companies will specialize in innovative products or services that may be unknown to the general public. These micro cap stocks are less likely to be published and talked about by stockbrokers compared to larger public companies. In addition, these micro cap stock companies often have fewer resources to make their information available to the public. Microcap stocks are in many ways different from other stocks since they are from companies with a small market capitalization and are usually traded on stock exchanges that do not require minimum standards, such as a minimum amount of net assets or a minimum number of stock holders.
The larger, more established micro-caps are listed on the NASDAQ Capital Market or American Stock Exchange (AMEX). Many micro-cap and nano-cap stocks are traded over-the-counter with their prices quoted on the OTCBB, OTC Link LLC, or the Pink Sheets. The shares of companies with a market capitalization of less than $50 million are typically referred to as nano-cap stocks. In business and investing, term microcap stock (also micro-cap) refers to the stock of public companies in the United States which have a market capitalization of roughly $50 million to $300 million. JSTOR ( September 2014) ( Learn how and when to remove this template message).
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