Tesla Inc. will join the major US stock competitions Monday, a relatively routine move unprecedented by the massive market valuation of the Silicon Valley electric car maker.
Tesla TSLA,
is by far the largest company added to the S&P 500 index SPX,
Next Monday, when it starts trading on the benchmark, it will likely be the sixth largest company on the index by market value, currently well above $ 600 billion.
There is “strong precedence” of earnings for stocks before their inclusion in S&P and after the announcement, but very limited precedent for short-term outperformance after the inclusion, Bernstein analyst Toni Sacconaghi said in a recent note.
And since Tesla’s fourth-quarter sales report in early January will not be “a blowout, we recommend investors start making a profit in the short term from December 21,” he said.
The 50 largest additions to the S & P500 index since 2010 have on average “performed strongly” before their announced inclusion in the S&P, outperforming an additional 3% between announcement and inclusion, and “modestly underperformed” over the days and months after admission, Sacconaghi said. .
On average, newcomers dropped 1.7% in the six months after admission, he said.
So far, Tesla’s valuation has been the more spectacular, including over 230% in the past six months, when hopes were high that the company would enter the index after meeting criteria such as longer-term profitability.
So far, Tesla shares have gained about 700% this year, compared to a gain of about 14% for the S&P.
S&P Dow Jones Indices announced the inclusion of Tesla on Nov. 16, after disapproving the company in an earlier reshuffle. Underlining the complexity of adding the company, it consulted with investors on how to go about it, eventually deciding to add Tesla all at once.
Since then, Tesla has seen its stock rise more than 60%, adding nearly $ 200 billion in market cap to its current $ 625 billion, about 10 times the GM of General Motors Co.
and 18 times Ford Motor Co.’s. F,
Also see: Tesla’s debt is close to the investment-grade rating with S&P
By joining the S&P, Tesla has numerous index-tracking funds, which flow to the many managed funds that Tesla had to add to their holdings to balance them.
It’s likely that most of the repositioning will happen after Monday, Sacconaghi said.
In addition to the imminent addition to the S&P 500 index, Tesla received good news on its corporate debt front late Thursday.
S&P Global Ratings raised its rating on Tesla bonds to BB, putting the company’s credit rating just two steps from the coveted investment-grade rating.