In a move that surprised The Street on Friday, Tesla was not added to the S&P 500 Index, but was overlooked by Etsy, Teradyne and Catalent. And investors are clearly showing their dismay: Tesla shares fell more than 17% in midday trading Tuesday.
Morningstar’s David Whiston, for example, is “not surprised” by Tesla’s snub of S&P and speculates that But maybe the committee is concerned about the stability of Tesla’s earnings, and that made them want to wait a bit.
In fact, in Tesla’s most recent quarter, regulatory emission credit sales accounted for roughly 7% of the company’s $ 6.04 billion in sales.
Joseph Osha of JMP Securities notes that while the second quarter was “widely reported as a heartbeat,”
Even Tesla bull veteran Dan Ives of Wedbush Securities argues that while “there are a variety of areas that the decision committee ultimately decided not to include this time,” most likely “GAAP profitability and sustainability at that time. metric given so many moving parts. “It’s a ‘try me’ situation in S&P terms.”
Osha tells Fortune that he believes that “concerns about returns will evaporate and the people who make these index decisions will do what they do.”
That said, with Tesla having met one of the top aggregate requirements, reporting earnings for four consecutive quarters, the wait has taken some by surprise. Morningstar’s Whiston says, “I’ve seen people say inclusion is safe and I never thought it would be safe. It’s likely inevitable, assuming Tesla doesn’t crash, but I’m glad the committee decided to wait.”
In fact, simply meeting the inclusion parameters does not guarantee that the S&P Dow Jones Indices will add the company to the S&P 500.
Meanwhile, Etsy, the mega online marketplace known for artisan goods, made the cut on Friday, despite a large gap between market capitalizations (Tesla’s roughly $ 320 billion outnumber Etsy’s by about $ 13.4 billion, as of Friday’s close), leaving some analysts scratching their heads. However, while Tesla may be more popular and powerful among merchants, the company just reported the required four consecutive quarters of earnings, while Etsy has reported 13 consecutive quarters of earnings.
Ives notes that the time for inclusion is still up in the air, but “another quarter of profitability would help answer any lingering questions S&P has,” he says.
Given that the stock had already taken a beating early last week before Friday’s news, Whiston notes that “investor reaction, at least with day traders, will be poor because those people are trading it and expecting to invest. Act quickly. “
