According to a recent story by on Forbes.com, Sovran Self Storage (SSS) was recognized as having a larger market cap than other businesses that are considered to be in the smaller portion of the S&P 500. The example used is that Sovran Self Storage has larger market cap than DeVRY Inc (DV).
To gain a better understanding of what this truly means, it is important to understand the S&P 500 and how it works. Investopedia.com does a great job explaining what it is here. The system highlights 500 companies that are chosen for market size, liquidity, industry grouping, and more. Investopedia explains that this system is a market value weighted index. This means that every stock’s weight is proportionate to its market value.
Forbes points out that many beginning investors don’t look at market capitalization when evaluating companies. It is easy to look at two stocks and if one is $20 and the other is $10, assume that the company with the higher priced stock is more valuable. In this instance though one important thing is being left out – the number of stocks each company has. If they had an even number of shares, the company with $20 stocks would be twice as valuable as the company with $10 stocks. Ultimately though, companies don’t have the same amount of shares. Market capitalization takes into account the cost of a share combined with the total number of shares. If the company with $10 stocks has more than double the number shares available than the $20 company, that company has a higher market cap.
At this point, SSS has a market cap of $1.74 B compared to DV’s $1.71B
This incredibly informative article provides a great look at why consideration for market capitalization is very important when looking at the value of a company’s shares. The individual price of a share is not enough to truly understand the value of that share and the worth of the company. This is why stock indexes like the S&P 500 are so helpful when looking at the risk/ reward involved in investing in a particular company.
Sovran Self Storage is synonymous with Uncle Bob’s Self Storage – the name that their stores run under. Uncle Bob’s Self Storage has locations all over the United States in 25 states and is one of the most well known self storage providers in the country.
To read the original article on Forbes.com, click here.