What happened
Shares of electric car company Fisker (NYSE: FSR) ended Wednesday's trading up 9.1%, logging its best close since late March following news that the company was being added to the Russell 3000 index. At one point during the day shares were up as much as 10%.
So what
While not a requisite for a stock to perform well, being part of a well-recognized market index like the Russell 3000 bolsters the bullish case for most stocks. In addition to drawing attention to the company, an inclusion in a key index means mutual funds and exchange-traded funds will soon be adding Fisker to their funds' investment pools. This wave of buying, in turn, can drive up the price of the shares in question.
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The timing of this buying is somewhat mismatched. Fisker notified shareholders of the decision made by FTSE Russell -- which makes and manages Russell indices -- on Tuesday morning, and Fisker won't officially become a Russell 3000 constituent until Monday, June 28. Wednesday's surge, therefore, may reflect speculative buying in anticipation of the institutional buying set to materialize next week.
It's also possible some of today's buying is pre-emptive purchasing from fund companies that manage index-based funds.
Shares of other electric vehicle outfits like Tesla and Nikola were also up firmly on Wednesday, suggesting the lift was at least partially linked to EV industry tailwinds. None of these names were up as firmly as Fisker shares were, though.
Now what
Becoming part of the Russell 3000 index is an accolade, to be sure. In and of itself, however, it doesn't make Fisker a buy. Given the company's lack of sales and earnings at this stage of its young existence, prospective shareholders should remain focused on its progress toward at-scale production and profitability. FTSE Russell's decision doesn't inherently suggest profitable revenue growth is in the cards anytime soon.
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James Brumley has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
