Etsy, the online marketplace for crafters, s able to make into the exclusive club of companies in the S&P 500 Index but the electric car maker Tesla could not.
This was a move that surprised many market analysts after this inclusion was announce by the S&P Dow Jones Indices on Friday evening. It said that Etsy would be added to its key index of large US companies later in September. Other ne companies that would also be joining the index for the first time include the Catalent, which makes pharmaceuticals, and Teradyne, a firm that specializes in industrial automation and robotics.
H&R Block, Kohl’s and Coty would be replaced in the index by these three new entrants, the index announced.
But what surprised and disappointed investors was the noticeable missing of a key company.
Tesla, which is now the most valuable automaker in the world, was not added to the S&P Dow Jones Indices.
The current market value of Tesla is more than $400 billion which is more than those of Toyota, Disney or Coca-Cola. It has been weeks that bullish investors had been waiting for the index to add Tesla to the S&P 500. The stocks of Tesla fell by as much as 7 per cent as news of the company not being added to the list broke.
“In a nutshell Tesla not getting into the S&P 500 will be a head scratcher to the bulls that viewed this as virtually a lock given all the parameters met,” Wedbush analysts Daniel Ives, Strecker Backe and Ahmad Khalil wrote in a note to clients.
Considered to be a key benchmark that allows the tracking of the success of America’s largest publicly-traded companies, the S&P 500 index is one of the most important stock market indices of t world. The index is weighted by market cap and its components are determined by what is known as the “US Index Committee” at S&P Dow Jones Indices, which generally rebalances the index quarterly.
According to S&P Dow Jones Indices, more than $11.2 trillion investments are indexed or benchmarked to how the index performs. Stocks of companies that are included in the S&P 500 often get a boost because such inclusion often spurs more buying of those stocks by large index funds.
For example, after the news of its inclusion broke, the stocks of Etsy rose 5 per cent in after-hours trading.
The preconditions for being included in the S&P 500 require a firm to be based in the United States, possess a market capitalization of at least $8.2 billion, be highly liquid, must be offering at least 50 per cent of its shares for the general public and the earnings for the most recent quarter and that of the sum of its trailing four consecutive quarters have to be positive.
Profit for the fourth straight quarter was reported by Tesla in July and in August, the electric vehicle maker made its shares more affordable for the general public and the average investor by splitting its stock 5-for-1.
“We cannot comment on individual companies and potential index changes,” noted a spokesperson for S&P Dow Jones Indices when asked why Tesla was not included.
(Adapted from CNN.com)