This Monday, electric vehicle stalwart Tesla enters S&P 500 territory today, marking its official debut to the exchange. Upon entry, it will occupy 1.69% of the total index, making it the 6th largest company in terms of weight. Thus, it also becomes the most valuable company to join Wall Street’s main index. The electric-car maker’s shares have surged about 60% since mid-November when its debut in the S&P 500 was announced.
Tesla is by far the most traded stock by value on Wall Street. The stock markets exchange an average of $18 billion worth of shares per each session over the past 12 months. It easily beats number two Apple, which trades on average $14 billion, according to Refinitiv.
Effect on S&P 500
At 186 times forward earnings, Tesla becomes one of the most expensive companies to join the index. Howard Silverblatt, the senior index analyst at S&P Dow Jones Indices, said that the impact on the valuation turned out smaller than expected. The 2021 price-earnings ratio will only tick up just 0.3 points from 22.3 to 22.6.
Meantime, as Tesla does not award dividends to investors, the index’s yield will go down. The S&P 500′s total dividend yield will shrink from 1.56% to 1.53%. 1.53% from 1.56%. In terms of index performance, Tesla can move S&P’s needle. According to Silverblatt, the S&P 500 will run 1 point higher for every $11.11 that Tesla moves.
Run up to December 21
Tesla’s debut into the S&P 500 is a fitting year-end celebration for the EV manufacturer. 2020 saw the company’s shares zoom upwards of 730%, creating a monster market cap of $658 billion (float-adjusted). Including last year, Tesla’s streak of five consecutive profitable quarters remains unbroken. The index requires investors to benchmarking the S&P as a benchmark to acquire Tesla shares before the opener Monday. Adding Tesla shares to their portfolios will accurately reflect the S&P index.
As a result, $90.3 billion worth of stock traded last Friday, the last day before its Monday entrance to the S&P 500 index. The stock price pushed up to almost pushed up almost 6% and closed at an all-time high of $695. Over 200 million Tesla shares changed hands during that single session, more than quadrupling the 30-day average trading volume.
Why is Tesla Valuable Right Now?
Why is the stock so high in demand? Apart from its move to the S&P 500 and it's recent 5 to 1 split, the EV company holds a significant advantage over its rivals. People want their cars and are lining up to buy or reserve one. In addition, the technology for electric cars that were in development is now available. Improved battery technology for longer travels between charges and better computing power for assisted drives are among the factors that pushed electric cars to reality.
Years of Tesla's main American rival, Nikola, is imploding. Last September, short-seller Hindenburg Research said the company was “an intricate fraud” perpetrated largely by founder and CEO Trevor Milton. It also reported that the flagship Nikola One made its demo rolling down a slope without propulsion. The stock fell by 10% that day while erstwhile partner General Motors received some shrapnel. Later, Nikola’s board pressured Milton to resign, while Ford and BP backed away or reduced their interests in the company.
All Systems Go
Once the bell rings this Monday, all systems go for the S&P’s newest belle of the ball. The rest of the market index will now feel the weight of their newest and heaviest member. For Tesla, this is their crowning glory. After a short snub by the S&P in their initial foray, they are now a member of this exclusive club. We’ll see how it fares against the big boys.
Watch the MadMoney video hosted by Jim Cramer where he explains why the Tesla stock rally will continue:
As Tesla enters S&P 500 territory, do you plan to get into the action? Do you own Tesla stock right now? Are you planning on getting some now that it’s part of the S&P 500? What do you think is in store for the company?