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Micro-Cap Shares Can Easily Multiply During a Market Decline or Recession

By Michael Markowski, Director of Research May 15, 2016

The share prices of micro-cap companies (market capitalizations below $100 million) are uniquely positioned to appreciate significantly or multiply during extended periods of overall stock market declines and economic recessions. This is possible because companies that receive micro-cap valuations have one or both of the following common denominators:

• Annualized revenue of less than $10 million.
• Weak balance sheets.
Because micro-cap companies have low revenue bases and minimal assets, the fortunes of a company meeting the criterion of a micro-cap can turn very quickly. This can happen upon the company entering into a favorable contract or receiving a significant infusion of cash from a financing. Either of these events occurring could result in a small company’s revenue and profits increasing exponentially. It is much easier, and thus more rapid for a company that has revenue of $10 million or less to grow to $20 million (a growth rate of 100%), than it is for a company that has $1 billion in revenue to grow to $2 billion.

Research, conducted at the beginning of my 40-year career, enabled me to conclude that there was a mathematical correlation between a multiple increase in a company’s annual revenue and a multiple increase in its market capitalization — or share price. My 3 minute 59 second video interview below by SCN’s Jane King entitled, “Markowski, Visionary Analyst 1 of 5” provides details about how I discovered the mathematical correlation.

As an investment banker who specialized in financing micro-cap companies, I was able to gain practical experience regarding the mathematical correlation between a company’s revenue growth rate and share price appreciation.  The research report and 2 minute and 57 second video below entitled, “Markowski, Visionary Analyst 2 of 5” provides details about my financing a micro-cap company when it was generating less than $10 million in revenue.   The revenue of the company has since grown to more than $500 million and its share price has multiplied.