Growth Brings Attention
Although a company might be too small for Wall Street to notice right now, at some point, a successful small cap is likely to get to a size where the analysts sit up and take notice. As it gets bigger, it will get followed.
This is one of the great oddities in the world. As a company’s shares get more expensive, they become more attractive to Wall Street. A company that is invisible to analysts at $10 per share and a $100 million market cap suddenly becomes an investment community darling at $100 per share with a $1 billion market cap.
The world outside of Wall Street doesn’t work this way. People don’t generally ignore a sweater at $10 and then fight with other shoppers at the chance to pay $100 for the same garment.
I am originally from Boston, so I saw aggressive bargain hunting first hand at the original (now bankrupt) Filene’s Basement store downtown. Filene’s had a system for dropping prices on items for each week they remained in the store. It was such an institution that my Dad was taught percentages Filene’s style as a child in Boston’s public schools (Show your work! A men’s shirt arrives at Filene’s Basement on March 1 and is priced at $5. The shirt’s price is halved every seven days. What is its price on March 15?). I loved this place and the surly sales staff. I am color-blind and once asked a salesman the color of a particular (highly discounted) suit I had found. He answered, “What color do you want it to be?” You just don’t get that kind of customer service anymore!
As a little boy, I was brought to Filene’s all the time by my Mom. I will never forget watching women disrobe in the aisles to try on much sought-after items. You can imagine this made a lasting impact on me.