What does market cap mean?

Market cap refers to the total value of a company's stock. It is calculated by multiplying a stock's price times its outstanding shares or number of available stocks.

Why is it important?

This is the value of the company as it stands. It shows how big a company is and its potential growth or decline depending on investors' confidence.

A high market cap stock usually reflects positive expectations because such companies are expected to generate considerable cash flow in the future for further expansion and/or acquisitions, which could lead to growth.

A low market cap stock typically reflects pessimism about the prospects of a company. It may indicate that the company is currently in poor financial health or cannot generate enough cash for further expansion or acquisitions.

More importantly, whenever investors are pessimistic about the future earnings potential of a company, they usually dump their shares which would cause its price to fall. It would further decrease the market cap of the company.