Monday, June 10, 2013

Facebook Stock Lifted On The View That It Will Join The S&P 500 Index Sometime Soon

Image representing Facebook as depicted in Cru...
Image via CrunchBase

Facebook Stock Lifted On The View That It Will Join The S&P 500 Index Sometime Soon

A sharp jump in the Facebook stock price is fueling analyst speculation that Facebook (FB) will join the S&P 500 index sooner rather than later. Facebook stock closed today at $24.33, up 4.46% over the previous day's close. It is no longer a question of if it will be invited, the question now is when. Previously, it was expected to be added to the index within the next year, but many now believe it will be sooner.
Facebook joined the NASDAQ in early December 2012, and now has the required months of seasoning since its IPO on May 18, 2012. The S&P 500 likes to have six to twelve months of seasoning. They also normally require four consecutive quarters of positive earnings, which for Facebook won't be until the 4th quarter of this year. Depending on how bad the S&P wants Facebook, other criteria might be used. The index may use the balance sheet criteria instead, which Facebook meets. With a current market value of almost $60 billion, that would place Facebook within the top 60 of the most valuable members of the index.

The S&P 500 is a primary benchmark index by more than 1300 mutual funds and quite a few ETFs, so once Facebook is added to the index, Facebook shares will be added to the holdings of those companies. This will likely cause a short-term increase in the price of Facebook stock, of possibly up to 5%. The addition of Facebook to the S&P 500 is a major benchmark that will likely spur buying.

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