Tesla (NASDAQ:TSLA) Likely to See New Trading Surge in Move to S&P 500

Monday represents a very big day for Tesla (NASDAQ:TSLA). Not because it's about to roll out a new product, or move into a new market, but rather because it reaches a very important milestone and company goal held for years. Specifically, it's the move to the S&P 500, and with it, traders are expecting a major rush into the company's stock as it becomes one of the biggest bellwethers of economic health in the United States.

A Huge Year for Tesla

We've been following Tesla right here for quite some time now, and the company has had a staggering year by nearly any metric you care to name. The company's stock has split once, and has increased fully 684% this year alone. It's also built a rank of what are called “Teslanaires,” those who invested comparatively paltry sums early on—one 33-year-old video producer dropped $10,000 into Tesla back in 2017, adding on gradually from there—to ultimately reach a value of over $1 million.

Right now, many are watching the results of Tesla's fourth quarter, which could bring its cumulative deliveries for 2020 to the half-million mark. That would be solid enough in a normal year, and given the year we've had so far, achievements that would be merely solid suddenly become explosive.

Yet with the move to the S&P 500 poised to strike on Monday, investors are already starting to reconsider. Is it time to take profit? Or is it time to hang on, and allow institutional operations to drive their investment to even greater value?

The Analysts are a Bit Skeptical

Right now, the current analyst consensus—based on our latest research—is firmly in “hold” territory. It's been in that territory for the last six months, though the ratios holding it there have changed frequently. Six months ago, the consensus featured 11 “sell” ratings, 14 “hold” and nine “buy.” Today, it's 11 “sell” ratings, 12 “hold”, eight “buy” and one “strong buy.” The “strong buy” is comparatively new, and has only been a part of the mix for the last month, but it's still enough to help skew the ratings.

The price target, meanwhile, has more than doubled in the last six months, going from $121.36 six months ago to $287.72 today. Given that the company closed yesterday at $655.90, some significant downside may be in the cards here. Even recent action has been comparatively mild; about a week ago, JPMorgan Chase & Co. boosted its price target from $80 to $90, which is nearly seven times less than the current share price. Only yesterday, Barclays boosted its price target from $125 to $230, which should make any casual observer wonder if they've seen the current price at all. Or if they care about the current price....

The Power of Institutional Drive

The addition of Tesla to the S&P 500 is going to be big. Why? Several reasons present themselves; one of the biggest is that being part of the S&P 500 conveys a note of credibility that few other things can. Being part of the S&P 500 is like being part of the pulse of modern economics; it's on par with being one of the stocks that make up the Dow Jones, though not exactly the same.

Additionally, it also connects the stock to a range of institutional investors. Joining the S&P 500 means getting in on index fund money. That's a lot of extra-institutional firepower that wasn't necessarily there for Tesla before, and should mean quite a bit of new capital coming into its coffers.

The question is, is Tesla sufficiently sound to make effective use of all that new capital? Some will debate that, but given the year Tesla has had—and this in the face of the coronavirus outbreak—it's a little stronger than it once was. While analyst consensus seems to be suggesting that investors just hold on to their current stakes—with share prices up around $670 a share as of this writing it's easy to see why—there's certainly room for further growth here. The stock split that took place back on August 31 showed that much clearly; Tesla stock was running over $2,000 a share before the split took it down to about $480. Now it's pushing its way toward $700 a share again, and the institutional gains will likely drive it the rest of the way there.

Hanging on after that, though, will be a question of risk aversion. The institutional spike of being part of the S&P 500 is coming. The competition facing Tesla in a market that's still somewhat shaky for electric vehicle production, though, will still be there, and still make Tesla's path forward a greater challenge.