What happened
Renewable energy company shares Tesla (NASDAQ: TSLA) It rose to all-time highs on Tuesday, and the reason is not obvious. CEO Elon Musk sent an email to discuss the “balance”, reminding Wall Street that these actions may be only a few weeks away from being included in the S&P 500.
As of 2:00 pm EDT, Tesla shares rose 6.5%. But at the beginning of the session, it went up a bit more and reached for the first time a market capitalization of $ 200 billion.
TSLA data by YCharts
And that
Once a quarter, a committee adjusts the S&P 500. Often new companies are added while others are removed. To be considered, companies must meet various eligibility requirements. Tesla already meets some requirements, such as being based in the US and having a share price higher than $ 1. But it lacks profitability.
Four consecutive quarters of profitability are required to be considered by the committee. Tesla has reported three consecutive quarters. Considering that it is already a large-cap stock targeting big-cap territory, a fourth consecutive quarter of earnings would make it an inclusion option in the S&P 500.
According to CNBC, a leaked email from Musk encouraged employees to “do everything possible” because “[b]reacting even looks very tight. “Without more context, it’s hard to know what this means. But it seems Musk needs more productivity from his workers in the quarter to be profitable. And Musk is likely aware of what’s on game if the company swings to green.
As a reminder, Tesla’s fiscal quarter ends today, providing a small window of opportunity.
Tesla’s stock is reaching new all-time highs. Image source: Getty Images.
Now what
So why would investors be excited about Tesla’s inclusion in the S&P 500? Tesla is a polarizing action, with passionate investors on both sides. Sometimes this makes Tesla shares volatile. Note that it rose more than 150% in 2020, but it also fell more than 60% from February to March. That is a wild journey.
Once in the S&P 500, that volatility could mitigate. Tesla shares will be purchased for index funds, and while in the club those shares will not be sold. You could create a floor for Tesla stock. However, while it is an interesting development for Tesla shareholders, it does not make the stock an isolated purchase. Investing in stocks for the long term also requires a good assessment of the underlying business.
