Why Shares of Ichor Holdings Jumped Today

MarketsMotley Fool

What happened

Shares of Ichor Holdings (NASDAQ: ICHR) rose on Friday after S&P Dow Jones Indices announced that the semiconductor equipment manufacturer would be added to the S&P SmallCap 600 index. The stock was up about 11.4% as of 12:25 p.m. EDT.

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So what

Ichor will join the S&P SmallCap 600 index, which is designed to track the small-cap segment of the U.S. equity market, prior to the start of trading on Monday, Aug. 27. The company will replace Super Micro Computer, which has been suspended from trading on the Nasdaq and is no longer eligible for inclusion in the index.

The S&P SmallCap 600 index isn't nearly as closely followed as the S&P 500 index. The Vanguard fund that tracks the S&P SmallCap 600 has just $2 billion of net assets, compared to more than $400 billion for the Vanguard fund that tracks the S&P 500. But investors are bidding up shares of Ichor nonetheless.

Now what

Ichor operates in a cyclical industry, which helps explain why the stock has tumbled 30% from its 52-week high despite extremely strong growth. Revenue surged 56% year over year in the second quarter, while non-GAAP earnings per share shot up 70%. But the market is anticipating weaker results ahead, valuing the stock at a single-digit multiple of trailing-12-month earnings.

Ichor is getting a boost from the index news, but the company will need to show it can withstand a downturn before investors give it credit for its results.

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Timothy Green has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.