Why First Advantage Stock Crushed the Market Today
Key Points
This is the S&P SmallCap 600 index, where it'll be replacing Kennedy-Wilson Holdings.
The change is to take effect this coming Tuesday.
It was rather advantageous to own First Advantage (NASDAQ: FA) stock as the trading week came to a close. Shares of the next-generation employment verification specialist, which enhances its solutions with artificial intelligence (AI), rose by almost 6% on Friday after being added to an important stock index.
That rise easily topped the 0.5% gain of another well-known market gauge, the S&P 500 index.
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Graduation day
After market close on Thursday S&P Global, the company behind its near-namesake S&P series of indexes, announced First Advantage would be joining one. Specifically, the company's equity will be included in the S&P SmallCap 600.
Image source: Getty Images.
As is typical with such moves, First Advantage was tapped because a current index component no longer qualifies for inclusion. The stock is replacing real estate company Kennedy-Wilson Holdings, which is being acquired.
The switch will take effect prior to market open next Tuesday, June 16.
New attention
Investors usually get excited about fresh inclusion in a stock index, particularly one managed by index king S&P Global, over a sudden jump in a company's visibility. More than anything, it makes the affected stock an instant target for the many index funds that remain durably popular with investors.
While this doesn't change the fundamental performance of any company, Arista's been doing well lately, as evidenced by its recently released first quarter results that featured double-digit growth in key fundamentals. For me, index inclusion is just the cherry on top of an already appealing cake with this stock.
Eric Volkman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends S&P Global. The Motley Fool has a disclosure policy.