Which Company is About To Be Added To The S&P 500 Index? | September 2

A few hours ago it was announced that a famous company is about to be added to one of the world’s leading stock indexes, the S&P 500, on September 18, 2023.

When a company is added to this index it certainly increases its prestige because it becomes one of the 500 best companies listed on the American stock exchange.

In addition, it usually also increases in value in the first few weeks because all ETFs that track the S&P 500 index will have to buy the company’s shares to reflect the new composition of the index.

The company went through difficult times during the lockdown, but has now fully recovered as shown in the following image which shows the trailing 12-month net income trend, which reached almost 2.5 billion dollars, after being negative for 5 billion dollars in the most difficult months of the pandemic (March 2020 to March 2021).

Table of Contents

The company covered by this analysis contains the following 3 sections:

1. Profile
General information such as market value, valuation multiples, sector and industry in which the company operates.

2. Performance
Company performance relative to the S&P 500 index and direction of the short, medium and long-term price trend.

3. Business Data and Business Margins
Numerical and graphical trend of the main business data and business margins in recent years: Revenue, Operating Income and Operating Margin, Net Income and Net Margin, Cash Flow From Operations and Cash Flow From Operations Margin.

*The content of this article is for informational purposes only an in no case constitute an investment advice. Past performance is no guarantee of future performance. To read the complete disclaimer click here.

1. Profile

This first section is introductory and it shows some general information to understand what the company does (Sector, Industry and Description), the market value expressed in billions of dollars (Market Cap) and the stock price (Last Price). In addition, the following 2 main valuation multiples are indicated:

  • P/S (Price To Sales):
    This multiple relates the market value and revenue of the last 12 months.
  • P/E (Price To Earnings):
    This multiple relates the market value and the net income of the last 12 months.

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2. Performance

This second section focuses on the performance of the stock price and aims to give a general view of how the company is performing, especially compared to the rest of the market represented by the S&P 500 index.

The “Trend Direction” table indicates whether the company’s price is in a positive or negative trend in the short, medium and long term.

The direction of the trend is based on the comparison between the last recorded price and the average price of the last 20 days (short term), 50 days (medium term) and 200 days (long term). If the latest price is higher than the average price then the trend is positive, if it is lower the trend is negative.

The “Performance vs S&P 500 Index” table shows the comparison between the price performance of the company and the S&P 500 index. The periods considered are from the beginning of the year, in the last year and in the last 3 years. Furthermore, the comparison is also expressed in graphical form.

3. Business Data and Business Margins

This third section focuses on the financial data of the company and on the trend of the last few years to understand if it is able to grow the volume of the business by increasing revenue, produce an improved operating/net income, produce an increased cash flow from operations and improve efficiency through the improvement of the 3 main business margins.

The business data and business margins included in this analysis are the following:

  • Revenue
  • Operating Income and Operating Margin
  • Net Income and Net Margin
  • Cash Flow From Operations and CFO Margin
Learn more about metrics

An explanation of each of the metrics considered is provided below.

  • Revenue:
    Indicates the revenue generated by the company from the sale of products/services.
  • Operating Income and Operating Margin:
    Indicates the company’s operating income and is calculated by subtracting all operating costs (cost to produce goods/services, personnel costs, marketing costs, depreciation and other non-cash operating costs) from revenue. This metric is very important because it allows you to understand how the company is doing without being influenced by costs that are not directly related to the company’s production of goods/services. The Operating Margin is useful for knowing the company’s efficiency from an operational point of view, in fact it is calculated as the percentage of revenue that the company manages to transform into operating profit. The more the operating margin improves, the more efficient the company becomes.
  • Net Income and Net Margin:
    Indicates the profit after all costs, then starts from operating profit and subtracts all non-operating costs (extraordinary costs, financial interest, taxes). This metric is important because it allows you to know the company’s result by subtracting all types of costs and not just operational ones. The Net Margin is useful for understanding how much of the revenue it manages to transform into profit, therefore the more the net margin grows, the greater the ability to produce profit for the same revenue generated.
  • Cash Flow From Operations and CFO Margin:
    Indicates the cash flow that operations have generated or absorbed. This metric may look the same as operating income but it is actually different. In fact, in calculating the operating income, “non-monetary” operating costs are considered, ie those that do not really lead to a cash outflow such as depreciation and stock-based compensation. Therefore, the cash flow from operations turns out to be an extremely important metric because it tells us if the company’s operations are really generating a positive flow or if instead it is causing money to be lost. The CFO Margin indicates the amount of cash generated/burned by operations as a percentage of revenue and therefore tells us if the company is efficient. The more it improves over time, the more the company is able to generate cash from its operations for the same revenue.

Below is a table containing the main business data and business margins of the last 12 months, compared with the previous 12 months. Furthermore, there are 2 subsections that contain the graphic trend of business data and business margins in recent years.

*Data are expressed in millions of dollars

Key Charts: Business Data | Trailing 12-Months

This first subsection focuses on the key business data (Revenue, Operating Income, Net Income and Cash Flow From Operations) trailing 12-months. The graphs with the trend of the last few years are shown below.

Key Charts: Business Margins | Trailing 12-Months

This second subsection focuses on the key business margins (Operating Margin, Net Margin and Cash Flow From Operations Margin) trailing 12-months. The graphs with the trend of the last few years are shown below.

Furthermore, the first graph shows the revenue growth rate trend in each single quarter of the last few years. This chart is helpful in understanding whether the company is accelerating revenue growth or if they are declining.

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The content of this article is for informational purposes only and in no case constitute an investment advice. To read the complete disclaimer click here.