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Kai Ryssdal: Wall Street traders were a happy group today. Higher corporate profits do tend to do that. Few stocks got more attention than Apple. But if you want a slice, it’s gonna cost you. $301.96 per slice, or share, at one point this morning. That makes the maker of the iPod, iPad and i-everything else the second most valuable company in the American economy as measured by market capitalization. Only Exxon Mobil beats it. And that is a pretty lofty position to be in.
So we asked Marketplace’s Alisa Roth to explain exaclty why market cap matters.
Alisa Roth: A quick refresher:Market cap is essentially how much a company is worth. It’s the number of shares times the stock price. In Apple’s case, that total is $275 billion.
James Angel: What it represents is the public opinion poll of the market.
James Angel is a finance professor at Georgetown’s business school.
Angel: It says that the market thinks this company’s really valuable and the market thinks this company is going to generate lots of sales and cash flows for many years to come.
Angel says all that confidence is nice, but it can be daunting. He says if he were Apple, he’d be nervous right now about living up to expectations.
Angel: You know, they’ve had so many successes that, will the market be disappointed if their next creative endeavor is not the great smashing success that the iPhone has been?
What the size of a company’s market capitalization can’t tell you is how well a company’s run, or how successful it’s going to be. After all, General Motors was once among the largest cap stocks in the country.
Jim Paulson is chief investment strategist at Wells Capital Management. He says large cap companies tend to be more mature than smaller ones, so there’s less room to grow.
Jim Paulson: If you’re the largest market cap stock or one of them, you don’t get that way by being a small innovative company. I mean you were at one point, but you’re not at this point anymore.
He says if a stock gets too popular, it might scare away investors.
Paulson: Maybe too popular right now, to buy, if you will.
We’ll get another take on how well Apple is doing on Monday, when the company reports quarterly earnings.
In New York, I’m Alisa Roth for Marketplace.
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