Tesla Inc. is set to join the U.S. equities’ major leagues on Monday, a relatively routine move turned unprecedented by the sheer size of the Silicon Valley electric-car maker’s market valuation.
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There is “strong precedence” for gains for stocks before their S&P inclusion and after the announcement, but very limited precedent for near-term outperformance after the inclusion, analyst Toni Sacconaghi at Bernstein said in a recent note.
And since Tesla’s fourth-quarter sales report in early January aren’t expected “to be a blowout, we would recommend that investors take short-term profits going into Dec. 21,” he said.
The 50 largest additions to the S&P500 index since 2010 have on average “outperformed strongly” before their announced inclusion in the S&P, outperformed an additional 3% between announcement and inclusion, and “modestly underperformed” in the days and months following inclusion, Sacconaghi said.
On average, the new entrants fell 1.7% in the six months post inclusion, he said.
Thus far, Tesla’s appreciation has been the more spectacular, including more than 230% over the past six months, when hopes were high the company would join the index after meeting criteria that included longer-term profitability.
So far this year, Tesla shares have gained about 700%, which compares with gains around 14% for the S&P.
S&P Dow Jones Indices announced Tesla’s inclusion on Nov. 16, after snubbing the company in an earlier rebalance. Underscoring the complexity of adding the company, it consulted with investors on how to go about it, ultimately deciding to add Tesla all at once.
Since then, Tesla has seen its shares rise more than 60% and add nearly $200 billion in market cap to today’s $625 billion, about 10 times General Motors Co.’s GM,
See also: Tesla debt edges close to investment-grade rating at S&P
Joining the S&P puts Tesla in countless index-tracking funds, rippling to the many managed funds that have had to add Tesla to their holdings to balance them.
It is likely that most repositioning will take place after Monday, Sacconaghi said.
In addition to the imminent addition to the S&P 500 index, Tesla got good news on its corporate debt front late Thursday.
S&P Global Ratings upgraded its rating on Tesla bonds to BB, leaving the company’s measure of creditworthiness only two rungs away from the coveted investment-grade classification.
