Wall Street investors are closely waiting for Tesla Q2 2020 results that may boost TSLA inclusion in the S&P 500. The company has already set the expectations high by announcing 30% more vehicle deliveries in Q2.
Wall Street has glued all its attention to Tesla Inc (NASDAQ: TSLA) as the electric-car giant will release its results today ahead in the day. Tesla has already created a massive buzz in the market since the beginning of 2020. The Tesla share price surged nearly 300% year-to-date making it the best performing stock on Wall Street. Investors today will be having a close look at the company’s bottom line and profits. If Tesla manages to deliver a profitable Q2 2020, it will be the fourth consecutive quarter of GAAP profits for the automobile giant, a key condition to enter the S&P 500 index.
Also, with its massive stock rally this year, Tesla has trumped Toyota to become the most valuable automobile company. Interestingly, Tesla has also managed to beat analysts’ expectations more frequently in recent quarters. Last week, the company announced its Q2 2020 vehicle deliveries which stood at 90,000 deliveries against the expected 72,000. Thus, this has resulted in strong expectations that the American automotive and energy company could more likely announce its fourth-consecutive profit quarter today. Moreover, in his recent email to employees, Tesla’s billionaire CEO Elon Musk has fueled rumors stating “breaking even is looking super tight”.
If we see the TSLA stock chart, the share price has jumped 50% in July itself. Now, further inclusion of Tesla in the S&P 500 can mean more inrush of funds. Just a day before today’s results, company’s stock corrected 4.54% with valuations slipping below $300 billion. At Tuesday closing, Tesla stock was trading at $1568.
Other Factors That Will Determine Tesla Inclusion to S&P 500
Even if Tesla Inc manages to deliver a fourth consecutive quarterly profit, inclusion in the S&P 500 index also depends on some qualitative and quantitative factors. Tesla meets some of the key requirements like:
- The company should be listed on either of the Nasdaq, the CBOE, or the NYSE.
- The company should have a minimum market cap of $8.2 billion
- It should report four straight quarters of GAAP profits.
Even if all these criteria are in check, it doesn’t guarantee the inclusion in the index. Howard Silverblatt, senior index analyst at S&P, Dow Jones Indices, told CNBC:
“The purpose of the index is to emulate the U.S. domestic common market. When you go to put a company in — to actually select it — it’s got to fit into the algorithm in that it represents the market, it has liquidity, it has size”.
The S&P 500 committee rebalances the index on a quarterly basis. Silverblatt added that it may remove and add companies at any time. Besides, adding companies of the size of Tesla to the S&P 500 come with its own set of challenges. To make room for the company, index investors need to sell portions of their other 499 stock holdings. Tesla is currently the 12th largest company by market cap in the U.S. The last mega-market-cap company to be added in the S&P 500 was Facebook in 2013, then valued at $120 billion.
Well, the pressure is building up to add Tesla to the index as the company has proved its mettle, especially during the most testing times. Many analysts predict that TSLA stock might take the same route that Yahoo did in 1999, after its index inclusion. Soon after adding to the S&P 500, it had surged 64% in five trading days.
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.