GameStop's soaring market value has it big enough to enter the S&P 500 - but the company faces still faces other hurdles before it can be included
- While some stock indices follow systematic criteria, which names get included in the S&P 500 is set by a committee of anonymous staffers at S&P Dow Jones Indices.
- GameStop, which was S&P 500-listed as recently as 2016, now once again meets a number of S&P's rules.
GameStop's biggest hurdle to index inclusion could be its lack of profitability.
GameStop's stunning run up in 2021 has given the company a market value that more than exceeds the threshold for S&P 500 inclusion. But it still faces significant hurdles, due largely to a handful of factors outlined in a new Wall Street Journal report.
While some stock indices follow systematic criteria, which stocks get included in the S&P 500 is set by a committee of anonymous staffers at S&P Dow Jones Indices. The committee leans on a number of rules but has ultimate discretion over the process.
GameStop, which was S&P 500-listed as recently as 2016, now once again meets a number of S&P's rules. The stock's market capitalization, currently around $16 billion, is well above the required floor of $13.1 billion. GameStop shares are also highly liquid and held largely by the public.
But GameStop's biggest hurdle to index inclusion could be its lack of sustained profitability. S&P rules say listed companies must have positive earnings in both the most recent quarter and the past year. The game retailer, however, generated a loss in the first quarter of 2021 as well as three of four quarters in 2020.
In principle, the S&P committee could look past GameStop's soft earnings for one reason or another - perhaps on account of its towering market value. But given the speed of GameStop's rise, the committee could be nervous about approving its inclusion too soon, Art Hogan, chief market strategist at National Securities Corporation, told the Journal.
"While the company may check most of the boxes, it is hard to know how long that will be the case," he said.
The S&P committee has also seemed to downplay raw
"Entrance to the S&P 500 is a combination of both art and science," Hogan told the Journal.
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