Why Is It Influential That Tesla Joins S&P 500?

What is S&P 500?
The S&P 500 Index or the Standard & Poor's 500 Index is a market-capitalization-weighted index of 500 of the largest publicly traded companies in the U.S.. The index is widely regarded as the best gauge of large-cap U.S. equities. The index's constituent stocks include 500 top listed companies in the United States, accounting for approximately 80% of the total market capitalization of the US stock market.

To qualify for the index, a company must have:

● a market cap of $8.2 billion (as of Feb. 2019 guidance)
● its headquarters in the U.S.
● the value of its market capitalization trade annually
● at least a quarter-million of its shares trade in each of the previous six months
● most of its shares in the public’s hands
● at least a year since its initial public offering
● the sum of the previous four quarters of earnings must be positive as well as the most recent quarter.

The reason Tesla is not already in the S&P 500 has to do with the fact the company was not profitable until recently. Profitability is part of the criteria for admission.

Now that Tesla has reported five consecutive quarters of positive net earnings, that variable is no longer a roadblock. 

Since the S&P 500 Index is priced based on market capitalization, Tesla will be a top ten holding in the Index on day one due to its size. With that said, Tesla will still only make up roughly 1% of the index.

And it also would be the seventh biggest stock in the S&P, behind only Apple, Amazon, Microsoft, Facebook and the two share classes of Alphabet, Google’s parent company.