After five consecutive quarters of posting a net profit, Elon Musk is preparing his electric-vehicle making company to join the S&P 500 Index, according to an announcement made by S&P Global on Monday.
In order to be eligible to join the S&P 500, a company must fulfill the following requirements:
- Should be a US company,
- Have a market capitalization of at least 8.2 billion USD,
- Be highly liquid,
- Have a public float of at least 50% of its shares outstanding,
- Its most recent quarter’s earnings and the sum of its trailing four consecutive quarter’s earnings must be positive.
The company managed to make a net profit despite being instructed to shut down their only US car plant earlier this year, due to the coronavirus pandemic.
Tesla (TSLA) is currently valued at more than Toyota (TM), and Coca-Cola (KO) and has a market capitalization of $387 billion.
Tesla’s third quarter posted a record profit of $331 million, partly due to production from their Shanghai factory, where the company benefits from cheap labor and a high demand for its Model 3 car. The company also delivered a record number of 140,000 cars in the third quarter, and is on track to deliver their target of 500,000 cars by the end of the year.
It is expected that the S&P will add Tesla in separate tranches, which will span a few days, according to fund managers, due to the enormous size of the stock.
Following the announcement, Tesla’s shares went up more than 10%.
In September, the S&P 500 declined to add Tesla to its index, without specifying why, which took investors by surprise. Nonetheless, they were confident that the company would be added sometime later in the year, since shares have went up more than 400% this year alone.
Tesla stocks are expected to surge once the company gets included in the S&P 500, though gains don’t always last long. According to Ned Davis Research, stock performances for companies usually fell behind the S&P a year after they have been added to the index.