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Tesla stocks observe significant spike as the automaker joins S&P 500

Author : Pankaj Singh | Published Date : 2020-11-18 

S&P Dow Jones Indices has recently announced that Tesla, a leading automaker will be added to the benchmark index before trading on Dec. 21. Apparently, Tesla is likely to become one of the 10 most valuable companies on the S&P 500 index according to closing prices of the day, i.e. Dec 21. Tesla’s shares jumped more than 13% in extended trading on the news, as money managers with funds tracking S&P 500 will need to buy the stock for their portfolios.

The company, led by CEO Elon Musk, holds a reputation of high value, enough for its inclusion in the index. Reportedly, inclusion in the S&P 500 is determined by the “Index Committee” of S&P Dow Jones Indices, which evaluates qualitative as well as quantitative factors.

As per credible sources, Tesla was not considered in September when it fulfilled the criteria to be on the index but was not chosen initially by the committee, since companies must report straight four quarters of profit as defined by the U.S. Generally Accepted Accounting Principles (GAAP). However, Tesla has recently registered its fifth consecutive quarter of profit with third-quarter revenue of $8.77 billion. The company also reported to deliver 139,300 vehicles during the third quarter.

Based on the analysis of Baird, an equity research firm, adding Tesla to the index is somewhat challenging as the stock’s record run propelled the company’s market capital to over $380 billion, making it the largest company ever to be added to the S&P. The stock, which split 5 for 1 in August, has more than quadrupled in valuation in 2020.

Speaking of which, S&P has stated that given the large size of the addition, they are seeking feedback from a consultation to the investment community to understand if Tesla should be included all at once on the rebalance effective date or in two separate parts ending on the rebalance effective date.

As per S&P Dow Jones Indices, at present more than $11.2 trillion in assets is benchmarked to the index, with roughly $4.6 trillion of the total in indexed funds.

Source credits: https://www.cnbc.com/2020/11/16/tesla-stock-jumps-on-news-company-is-joining-sp-500.html

About Author

Pankaj Singh

Pankaj Singh

Endowed with a post graduate degree in management and finance, Pankaj Singh has been a part of the online content domain for quite a while. Having worked previously as a U.K. insurance underwriter for two years, he now writes articles for fractovia.org and other online portals. He can be contacted at- [email protected] | https://twitter.com/PankajSingh2605

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