Tesla headed to the S&P 500?

By StocksFOXBusiness

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Tesla stock could become a member of the S&P 500, and that could be good news for shareholders.

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Tesla just posted its first quarter of profitability -- under generally accepted accounting principles (GAAP) – and with that development in mind analysts at Macquarie have laid out the case for the company’s potential acceptance into the S&P 500, a broad-based stock market index that is cited as a general reference point for how large-capitalization stocks are performing.

For Tesla, and its shareholders, inclusion in the index would be a good thing. Companies added to the S&P 500 for the first time have seen an average 6.9 percent price increase on the day of announcement versus the average 0.2 percent increase of the S&P 500.

Inclusion would attract new investors to the company, who would indirectly purchase the company through financial products invested in the S&P 500. When a stock is added to the S&P 500, the investments tied to the S&P 500 must buy the stock.

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Macquarie said that according to its analysis, Tesla fulfills all of the S&P 500’s requirements except having four quarters of positive GAAP earnings. Macquarie expects Tesla will become eligible after the second quarter of 2019. While the company will still have to prove that it can sustain profitability, the analysts believe that the company will achieve that, driven by steady demand for Model S and Model X, increasing production to meet Model 3 demand and the potential for zero-emission vehicle credit revenue.

Multiple companies are added to and removed from the S&P 500 every year. For a recent example, the S&P announced June 4 that Twitter would be added to the S&P 500. Shares shot up in the aftermath, but have since pulled back, in concert with stocks in general, which were hit by a volatile October. Year to date, shares are up about 44 percent.