Do you buy Tesla shares? Here’s what an analyst says before adding the S&P 500

Tesla Inc. is set to join major US stock leagues on Monday, a relatively routine move unprecedentedly transformed by the sheer size of the Silicon Valley electric car maker’s market valuation.

Tesla TSLA,
+ 2.80%
is by far the largest company to be added to the S&P 500 SPX,
On Monday, when it starts trading at the benchmark, it will probably be the sixth largest company on the index by market value, currently well over $ 600 billion.

There is a “strong priority” for earnings for shares before the inclusion of the S&P and after the announcement, but a very limited precedent for short-term performance after the inclusion, analyst Toni Sacconaghi of Bernstein said in a recent note.

And since Tesla’s fourth-quarter sales report in early January is not expected to “be an explosion, we would recommend investors to make short-term profits by December 21,” he said.

The top 50 additions to the 2010 S & P500 index were “above average” before the announced inclusion in the S&P, exceeded an additional 3% between announcement and inclusion and “underperformed” in the days and months following inclusion , said Sacconaghi.

On average, new entrants fell 1.7% in the six months since inclusion, he said.

So far, Tesla’s appreciation has been even more spectacular, including over 230% in the last six months, when hopes were high, the company will adhere to the index after meeting the criteria that included longer-term profitability.

So far this year, Tesla shares have gained about 700%, which compares to the gains of about 14% for S&P.

The S&P Dow Jones Indices announced the inclusion of Tesla on November 16, after refusing the company in a previous rebalancing. Emphasizing the complexity of adding the company, it consulted with investors on how to make it, finally decided to add Tesla suddenly.

Since then, Tesla has seen its shares grow by more than 60% and add a market capitalization of nearly $ 200 billion to $ 625 billion today, about 10 times GM of General Motors Co.,
and 18 times Ford Motor Co. F,

See also: Tesla’s debt is approaching the investment rating at S&P

Joining S&P puts Tesla in countless index tracking funds, reaching the many managed funds that had to add Tesla to their holdings to balance them.

Most of the repositioning is likely to take place after Monday, Sacconaghi said.

In addition to the imminent addition to the S&P 500 index, Tesla received good news on its corporate debt front late Thursday.

S&P Global Ratings upgraded its rating on Tesla’s bonds to BB, leaving the company’s solvency measure just two steps away from the coveted investment grade rating.