Tesla Motors Inc (NASDAQ:TSLA) has been identified as having a higher market capitalization than S&P 500 small cap company Stryker Corporation (NYSE:SYK). While the price of Stryker Corp. stocks remained relatively stable, the surge observed last week in the electric vehicle manufacturer’s stock price might have been responsible for its higher market cap. What makes market capitalization important while talking about stocks is the fact that it measures the true value of a company’s stock compared to the value attributed to it by the stock market?
A company’s market capitalization value decides the category into which it fits. In this case, Tesla Motors Inc (NASDAQ:TSLA) and Stryker Corporation (NYSE:SYK) belong to the mid- to large-cap list. Novice investors, when they look at the stock prices of two companies, come to the conclusion that the company with the higher stock price should be worth more than the other company. This hypothesis is quite erroneous as the value of a company’s stock is not sufficient in itself to determine the worth of the company.
One can determine the worth of a company only by considering the company’s stock price in conjunction with the number of outstanding stocks. And this leads us back to market capitalization. Consider Tesla Motors Inc (NASDAQ:TSLA) and Stryker Corporation (NYSE:SYK). The difference in their stock price is quite huge with the former trading at around $248 and latter at about $81. The market cap of both the companies can be obtained by multiplying the value of a share by the number of outstanding shares. Now, we see that Tesla has a slightly higher market cap of $ 30.78 billion than Stryker Corp. which has a market cap of $30.75 billion.
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