Micro-cap Stock Screener: Everything You Must Know

by Amy Smith | Last Updated: April 17, 2020

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Screening for micro-cap stocks is similar to other stock market screening tools. The main difference is that the predetermined criteria is for companies that have a market value between $50 million and $350 million. Anything below that would be considered a nano-cap stock.

A screener will allow you to sort through the junk and find the hidden gems and achieve the ultimate goal of any investor: make large sums of money with the click of a button. Make sure you know how to invest in micro-cap stocks before investing in stocks. Here’s how you can gain an investing edge by using stock market screeners.

Mirco-cap stock screener is an powerful tool for investors

What is a micro-cap stock screener?

A micro-cap stock screener is a tool that allows you to filter stocks based on specific requirements such as price, volume, revenue, etc. It is similar to other stock screeners; however, it may already be pre-defined to only include stocks that have a market capitalization between $50 million and $350 million value. There are a variety of screeners available that range from free to paid. Investors and traders carefully choose what screening tool fits their needs best based on their trading profile.

Here are our reviews of the best free micro-cap & penny stock screeners and the best paid micro-cap stock screeners.

Why should I use a micro-cap screening tool?

It is important to use a screening tool because it allows you to filter stocks on the metrics that fit your investment style or set of criteria. There are over 15,000 stocks and it is nearly impossible to sort through all of them manually. A screener allows you to sort through thousands of stocks at time. Whether you are a fundamental investor or technical analysis, a stock screener is a power tool that will enhance your investing capabilities.

How to use a stock screener

Now that you have a better understanding of micro-cap stock screeners, it’s time to learn how to use them.

1. FIND A SCREENER

The first step is to find a micro-cap stock screener that fits your needs. Some screeners are better for technical analysis and some are better for fundamental analysis.

2. DECIDE FREE OR PAID STOCK SCREENERS

Determine whether you are willing to pay for premium micro-cap stock screeners or prefer free screeners. We recommend trying free ones until you understand the ins and outs of screening.

3. MAKE A LIST OF CRITERIA OR PROFILE

Come up with a list of criteria that you will filter for such as price, volume, revenue growth, or profitability. You can look at prior micro-cap stocks that have performed well and try to find common elements and then screen for these metrics. The most difficult part of screening stocks is coming up with the actual criteria. Garbage in and garbage out. We’ve come up with a list of the most successful micro-cap stock screens for you.

4. CREATE YOUR FILTERS

Once you have determined your micro-cap screener, next you will create the filters for your specific metrics. This is the easiest step because you are just inputting the criteria you have already developed in the above step. For example, you may have determined that a key metric is stocks between $1 and $3, thus you would filter for this in the stock screener under “price”. You will likely have multiple metrics that you are filtering for like volume is greater than average volume, revenue is growing greater than 5%, and insider ownership is greater than 5%.

5. BACK TEST SCREENER

It is important to take time to back-test your micro-cap screener. This is not a necessary step, but it will improve your probability of selecting a winner. Back-testing is finding similar stocks that have met the criteria in the past and then seeing how those stocks performed. It typically will show the win-loss ratio and average gain or loss. If there are a lot of losses and a high percentage of stocks losing value, it may be necessary to redo the criterion and filters. However, ensure that you look at the performance over your investing time period because some stocks may gain a significant amount in the 3 to 6 month timeframe then lose value.

6. RUN THE SCREENER & SORT

Time to run the micro-cap screener now that all the filters are in place. A list of stocks that meet your specific filters will remain. Many screeners allow you to sort ascending or descending by one or more variables like volume, price, etc. Sorting allows you to narrow down your list even further by finding the top 3 to 5 companies. So now that you have a list of stocks from your screener, what do you do with them?

7. RESEARCH THE COMPANIES EXTENSIVELY

Research the best 3 to 5 (or even 10) stocks that come from your micro-cap stock screener. In-depth research is time consuming and challenging, but is the only way to really determine whether the company has a good chance of succeeding. Make sure to look over financial statements on the Securities and Exchange Commission. Research the executive team and determine if any have engaged in past fraud instances. Micro-cap stocks are notorious for fraud and schemes, so be careful. Research will allow the diligent and savvy investors to weed out the garbage and find the hidden gems.

8. INVEST & TRACK RESULTS

It is critical to track the results of the companies your stock market screener provides. This can be done through back-testing or on a go-forward basis. Any portfolio tool will work even Google Sheets or Excel. Decide whether you want to make an investment into the stock or just paper trade which is another good option. If you choose paper trading, here are a few of the best free penny stock paper trading & stock market simulators

9. REFINE AND TWEEK SCREENER

Go back to your micro-cap stock screener and continue to adjust, refine, and modify the metrics, filters, and criterion. Creating a feedback loop to screening will make you a better investor. Alternatively, create several screeners and analyze the results via back-testing.

10. CHECK RESULTS FREQUENTLY

Make sure to continue to check the results of your micro-cap screener. New stocks will appear as often as everyday depending on the filters selected. At a minimum, be sure to check twice a quarter since financial information will be updated after earnings.

Different micro-cap screening techniques

There are different techniques for screening stocks. The two main techniques are fundamental and technical.

Fundamental screening techniques

Fundamental micro-cap screening is using fundamental metrics as the criterion for the screener. These metrics include revenue growth, profitability, income growth, financial ratios etc. One of our favorite techniques is the earnings acceleration and revenue growth (EARG). This technique filters for stocks where earnings are positive and increasing year-over-year and quarter-over-quarter.

Technical screening techniques

Technical micro-cap stock screens are using technical metrics like volume expansion, price action, and moving averages to find stocks. One of our favorite techniques is to look for momentum stocks using technical screening. This technique filters for significant volume expansion which refer to as the bull snort, record OBV (on-balance-volume), and the stock price hitting ATH (all-time highs). This usually provides a list of micro-cap stocks that are making powerful momentum swings upwards.

Weighing the pros and cons of using a stock market screener

While micro-cap stock screening has many benefits, it is important to understand the limitations of screening in general.

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