Why Tile Shop Holdings Stock Soared Today

By Markets Fool.com

Image source: Tile Shop Holdings.

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What happened

Shares of Tile Shop Holdings (NASDAQ: TTS) climbed as much as 11% early Wednesday and then settled to close 9.6% higher following news that the specialty flooring company will join the S&P SmallCap 600 Index later this week.

So what

Specifically, Tile Shop will replace current S&P SmallCap 600 member Epiq Systems, alegal technology and services company whose shareholders earlier this week approved its previously announced acquisition by OMERS Private Equity.

According to apress releasefrom S&P Dow Jones Indices, the change will take effect after the market close this Friday, Sept. 30.

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Now what

It's rare to see a stock swing quite so much on its inclusion in an index. But we're also talking about a relatively volatile small-cap stock that previously struggled to sustain its past torrid rates of growth, at least until CEO Chris Homeister took the reins in early 2015 and implemented multiple initiatives to solidify the balance sheet, reduce employee turnover, and reignite that growth.

So investors could view Tile Shop's joining the S&P SmallCap 600 as an encouraging sign of relative stability, but it still shouldn't shift investors' focus from the actual business -- which is performing well of late -- as the central driver of the bullish argument for owning Tile Shop shares.

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Steve Symington has no position in any stocks mentioned. The Motley Fool owns shares of and recommends Tile Shop Holdings. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.