As Tesla prepares to make an entry to the S&P 500 index later today, here’s how it will impact the index movements.
The world’s largest automobile company Tesla Inc (NASDAQ: TSLA) is all set to debut on the S&P 500 on Monday, December 21. With a weighting of 1.69%, Tesla will be the fifth-largest company in the index beating other giants like Alphabet Inc (NASDAQ: GOOGL) and Berkshire Hathaway Inc (NYSE: BRK.A).
After an outstanding performance, Tesla has finally roared its way to the prestigious index. As of last Friday’s closing, TSLA shares are up nearly 730% on a year-to-date basis. Besides, the company’s market cap stands at $658 billion, greater than the combined market cap of its other competitors.
Tesla’s entry to the S&P 500 hasn’t been anything less than dramatic. During the final run-up of the stock last Friday, active and passive fund managers rushed to grab a pie of TSLA shares. Last Friday, TSLA shares closed 6% up at its new 2020-high of $695. The trading volumes also skyrocketed to 200 million shares in a single session. This was four times the average 30-day trading volumes recorded by Tesla.
Interestingly, the TSLLA shares have been trading at 186 times forward earnings. This makes Tesla one of the most expensive companies ever to enter the S&P 500 index. Steve Sosnick, chief strategist at Interactive Brokers in Greenwich, Conn told NY Times:
“This is by far the biggest index inclusion that they’ve ever attempted. The stock will immediately be a top 10 name in the S&P, which is nuts.”
Impact of Tesla Entry to S&P 500
The impact of Tesla’s entry to the S&P 500 shall be smaller than what many had expected! According to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, the 2021 price-earnings ratio for the index will surge to 22.6 from 22.3.
However, as Tesla doesn’t pay any dividends, the dividend yield of the S&P 500 will dip to 1.53% from 1.56%, said Silverblatt. But being a high-growth stock, Tesla is capable of taking the index further. The index analyst said that for every $11.11 change in Tesla’s share price, the S&P 500 changes by 1 point.
After Friday’s rally in the TSLA stock price, Elon Musk’s net-worth also soared by an additional $9 billion. By the closing hours on Friday, Elon Musk was worth $139 billion. The business tycoon has added over $100 billion to his net worth this year itself becoming the second-richest man on the planet.
Bhushan is a FinTech enthusiast and holds a good flair in understanding financial markets. His interest in economics and finance draw his attention towards the new emerging Blockchain Technology and Cryptocurrency markets. He is continuously in a learning process and keeps himself motivated by sharing his acquired knowledge. In free time he reads thriller fictions novels and sometimes explore his culinary skills.
