How to research small-cap stocks

Six checks for smaller companies

Market capitalization is a starting definition, not a measure of quality.

1. Market cap and the company's actual scale; J-KABU can filter at JPY 50 billion.
2. Several years of revenue and operating-profit growth.
3. Operating margin and the cost of expansion.
4. Trading volume and the risk of being unable to trade at the desired price.
5. Cash, equity, operating cash flow and dependence on new funding.
6. Customer concentration, competitive position and market size.

A starting screen

Use market cap of at most JPY 50 billion with revenue growth of at least 10%, then examine liquidity, cash runway, profit quality and disclosures.

Specific risks

Thin trading can amplify price moves. Small companies may need new equity or borrowing and may be sensitive to contract losses. Consider position sizing and the possibility of a permanent loss.