Mid-Cap: Definition, Other Sizes, Valuation Limits, and Example

What Is Mid-Cap?

Mid-cap refers to companies with a market cap (capitalization) between $2 and $10 billion. It falls between large-cap and small-cap companies. Classifications like large-cap, mid-cap, and small-cap are approximations and may change over time.

Key Takeaways

• Mid-cap companies have a market cap between $2 billion and $10 billion.
• They are expected to grow, increase profits, market share, and productivity, as they are in the middle of their growth curve.
• Mid-cap stocks provide a balance of growth and stability, making them useful for portfolio diversification.

Understanding Mid-Cap

Companies can raise capital through debt or equity. Debt needs to be paid back but is generally borrowed at a lower rate than equity. Equity does not need to be paid back in times of crisis. Companies strive to strike a balance between debt and equity, known as capital structure. Capital structure, especially equity capital structure, reveals a company’s growth prospects.

Market capitalization provides insight into a company’s capital structure and market depth. Small-cap companies have market capitalization of $2 billion or less, large-cap firms have over $10 billion, and mid-cap companies fall in between ($2 billion to $10 billion). Additional categories like mega-cap (over $200 billion), micro-cap ($50 million to $500 million), and nano-cap (less than $50 million) exist for clarity.

Mid-cap companies appeal to investors because they are expected to grow, increase profits, market share, and productivity. They are in a growth stage, making them less risky than small-caps but more risky than large-caps. Successful mid-cap companies may exceed the mid-cap category if their market capitalization rises due to higher share prices.

A company’s market cap depends on market price, but a stock priced above $10 does not necessarily mean it is mid-cap. Market capitalization is calculated by multiplying the current market price by the current number of shares outstanding.

Advantages of Mid-Caps

Financial advisors suggest diversifying portfolios with small-, mid-, and large-cap stocks to minimize risk. Mid-cap stocks provide a balance between growth and stability.

Diversification in mid-cap stocks depends on specific goals and risk tolerance.

Advantages of mid-cap companies include stable growth when interest rates are low, access to credit for growth during the expansion of the business cycle, relative financial stability during economic turbulence, a focused business model, an established niche in the target market, and potentially higher returns for less risk-averse investors.

Investors can buy mid-cap stocks directly or invest in mid-cap mutual funds focused on mid-cap companies.