WHAT IS Single-Digit Midget
Single-digit midget is a slang term for a stock with a price that is below $10 per share after having traded at a much higher level. The term came into prominence in the early 2000s when internet companies that had taken off in the late 1990s, called dot-coms, lost value rapidly and their stocks traded at radically lower prices than they had earlier. Since these stocks have largely either stabilized or been flushed out of the market, the term is not used commonly anymore.
BREAKING DOWN Single-Digit Midget
Single-digit midget is a slang term that developed during the mid-2000s when internet companies that did not have clear business models, or even any mechanism to take in money, burned through the venture capital they had obtained and began to fail. Because these companies had traded at such high prices, the fall to trading at less that $10 per share was shocking and exposed the instability of the individual companies and of the industry as a whole. The insulting nature of the term is a reflection of the resentment investors and analysts felt at the dotcom bubble and the rush of venture capitalists to pour money into companies they didn’t understand and that they didn’t hold accountable for growth plans.
At the time the term was in use, the word midget wasn’t widely seen as derogatory, so the term was intended to be humorous and insulting, not offensive. The financial meaning of single-digit midget shouldn’t be confused with the primary use of the phrase to mean a military member with fewer than ten days left to serve before an honorable discharge.
Cause of Single-Digit Midgets
By the second half of the 1990s, the internet, also called the World-Wide Web, became accessible to the general public, and companies sprung up with no clear business model. Because the internet opened up so many new avenues to deliver and collect information and provide services, lenders and venture capitalists thought that the simple fact that a company was on the internet meant that it would make money. These lenders financed new internet-based companies, which they called dot-coms because the companies often included the top-level domain as part of the company name, despite the fact that these companies often didn’t have clear business models or direct mechanisms to take in revenue.
These dot-coms issued initial public offerings (IPOs) with publicity and fanfare, and often traded at high amounts, despite having none of the normal indicators that would warrant high stock prices. Over the next decade, as venture capitalists and lenders did not make money on these companies because the companies weren’t earning revenue, the market bottomed out and stocks that had been selling for hundreds of dollars began selling for less than $10. Single-digit midget developed as a pejorative slang term for these companies that had been wildly overvalued but were now selling for pennies on the dollar.