Uber Bullish Surge: Uber Technologies (UBER) witnessed a remarkable ascent, surging more than 2% on Monday to reach a more than two-year high. The catalyst behind this boost? S&P Dow Jones Indices’ announcement of Uber’s inclusion in the S&P 500 Index, effective December 18. This move carries implications beyond a one-day surge, potentially providing enduring support for Uber’s stock.
On Friday, S&P Dow Jones Indices disclosed its decision to add Uber to the world’s most widely followed stock market index. Joining Uber are manufacturing firm Jabil (JBL) and building products supplier Builders FirstSource (BLDR), with the trio set to replace Sealed Air Corp. (SEE), Alaska Air Group (ALK), and SolarEdge Technologies (SEDG) on the index. Uber’s shares responded energetically, reaching as high as $60.88, a $3.53 increase, with robust trading volume. Notably, Uber’s value has nearly tripled since June 2022.
Looking ahead, Uber’s inclusion in the S&P 500 could usher in a period of stability rarely seen since the company’s initial public offering in May 2019. The significance lies in the advantages Uber’s stock is likely to enjoy due to index mutual funds and exchange-traded funds (ETFs) that track the S&P 500. As part of the index, these funds are obligated to regularly purchase shares of Uber along with other constituents when investors buy shares of S&P 500 index funds and ETFs.
Also Read: Lyft Price Cuts: A Slow Road to Challenging Ubers Dominance
The impending reconstitution of the S&P 500 later this month will necessitate index fund and ETF managers to initiate buying Uber shares. Conversely, when investors redeem shares of these funds and ETFs, Uber’s shares might encounter proportional selling pressure.
However, the overall impact of S&P 500 inclusion tends to lean toward the positive. U.S. funds and ETFs tracking the S&P 500 had $5.7 trillion in assets at the beginning of this year, constituting around one-eighth of the entire value of the U.S. equity market. The three largest U.S. ETFs, tracking the S&P 500’s performance, boast combined assets of $1.2 trillion.
While some studies suggest the beneficial impact of S&P 500 inclusion diminishes relatively quickly, stocks in the index generally enjoy heightened name recognition and improved accessibility, sustaining positive effects beyond short-term price bumps.
Alongside Uber, Jabil and Builders FirstSource will transition to the S&P 500 from the S&P MidCap 400 Index, amplifying the market dynamics for these companies. Despite an initial rise in early trading, both Jabil and Builders FirstSource closed down more than 1%. As Uber’s journey into the S&P 500 unfolds, market observers are keenly watching for the lasting effects on the ride-hailing giant’s stock, expecting a paradigm shift in its trading dynamics and potential for sustained bullish momentum.
Our Reader’s Queries
Why is Uber stock going up?
With the continued improvement and expansion of self-driving technology, Uber’s profit margins are poised to increase even further as drivers become less necessary in the coming years. This promising outlook makes it difficult not to have a positive outlook on the company’s future.
Is it a good idea to invest in Uber?
We believe that Uber’s stock is undervalued, despite its 4-star rating. Our long-term fair value estimate of $68 represents an enterprise value of four times our 2023 revenue estimate. Over the next five years, we anticipate that Uber’s revenue will grow by an average of 17% annually.
Will Uber break even?
The company is on track to break even in a year or less, which is great news! We crunched the numbers and found that the company needs to grow at an average annual rate of 50% to meet the consensus forecasts. This is a strong indication of analysts’ confidence in the company’s potential.
What is Uber transportation?
Uber is a ridesharing company that provides a convenient app for passengers to hail a ride and for drivers to earn fares. The company hires independent contractors as drivers, making it a flexible and accessible option for those looking to earn extra income. With its user-friendly platform, Uber has revolutionized the transportation industry and made it easier for people to get around.