Disclaimer: I am not promoting one stock over another, I am simply listing facts. Not financial advice, please do your own thorough due diligence before making any trade.
Misconception: Lower Share Price Means Cheaper Right?
Wrong. Just because a stock has a low share price, doesn't mean it's cheaper. Market cap is the only true, reliable measurement to compare and determine if a stock is "cheap". Here's an example:
Nokia trades at only $6 per share - sounds cheap right? Unfortunately, if you look at its market cap, it's worth ~$34 billion. If GME traded at this market cap, it would be at $460~ per share. (Hint: to calculate market cap, you multiple the total outstanding shares a company has issued, by its share price)
Don't be deceived by a cheap share price, look at market cap.Let's look at GME, with a market cap of $11.73 billion at the current share price of ~$158, it's actually much cheaper than NOK, despite the higher share price:
That's 3x cheaper than NOK!How about MovieStock? It turns out, it's more expensive than GME, despite trading at a lower share price ($16 billion > $ 11.73 billion):
Hmm would you look at that, GME is actually "cheaper" than MovieStock!Here is a table to help visualize my point. Note that Apple has a cheaper share price than GameStop, but is 200 times more expensive by market cap. The higher the market cap, the harder it is to move the share price of the stock, and the converse is also true (easier to move the share price of a stock with a smaller market cap).
| Company | Market Cap (On Aug 11, 2021) | Share Price | Market Cap Converted to GME Share Price |
|---|---|---|---|
| GameStop (GME) | ~12 billion | ~$158 | ~$158 |
| MovieStock | ~$16 billion | ~$31 | ~$216 |
| Nokia (NOK) | ~$34 billion | ~$6 | ~$460 |
| Robbinghood (HOOD) | ~$43 billion | ~$51 | ~$575 |
| Apple (AAPL) | ~2.41 trillion | ~$145 | ~$32,401 |
Conclusion:
Do not fall into the trap of thinking a lower share price means one stock is "cheaper" than another. Look at the market cap (shares outstanding * share price) to get the full picture.
A big misconception is that people think MovieStock is cheaper than GameStop solely based on share price, but in fact, GameStop is actually cheaper (and I would argue, more undervalued). I hope this post dispels this egregious misconception.
$Tesla Motors(TSLA)$ $Apple(AAPL)$ $GameStop(GME)$ $AMC Entertainment(AMC)$ $Nokia Oyj(NOK)$
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