Please ensure Javascript is enabled for purposes of website accessibility

Why Amphastar Pharmaceuticals, Inc. is Soaring Today

By Brian Feroldi - Updated Sep 27, 2016 at 12:08PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Traders bid up shares on the news that the company's stock will be added to an index.

Image source: Getty Images

What happened

Shareholders of Amphastar Pharmaceuticals (AMPH 3.26%), a specialty pharmaceutical company focused on generic and proprietary injectable and inhalation products, are seeing green on Tuesday. The company's stock is up by 12% as of 12:30 p.m. EDT after news broke that it will be joining the S&P Smallcap 600 Index on Wednesday.

So what

S&P announced Tuesday that Cirrus Logic, a semiconductor company, is being removed from the S&P 600 Smallcap index and will be added to the S&P Midcap 400 Index instead. That move has created an opening in the small-cap index fund and S&P has decide to add Amphastar.

When a company is added to an index all owners of funds that follow the index are simultaneously forced to buy the company's shares in order to remain up to date. Often times that creates enough short-term demand for the stock that shares rally, which appears to be happening.

Now what

Amphastar's stock has been on a terrific run since the start of the year. Including Tuesday's move, shares are up nearly 50% since Jan. 1, which blows past the returns of the healthcare sector in general as measured by the Vanguard Health Care ETF (VHT 0.79%).

AMPH Chart

AMPH data by YCharts

If you take a close look at the company's results it's easy to understand why shares are performing so well. Revenue is growing by double-digits, the company is profitable, and it has a pipeline packed with potential.

That pipeline includes four abbreviated new drug applications currently on file with the FDA, three biosimilar product candidates in development, and 11 other generic products in development. In total, Amphastar believes these products represent an addressable market of more than $26 billion, a massive number for a company with a market cap currently under $1 billion.

Given all of the above, it's not hard to understand why S&P chose to add Amphastar to its index. However, while a temporary share price jump is always fun, investors should remember that being included in the index will have no effect on the company's business. Therefore, if you were bullish or bearish on Amphastar's stock prior to Tuesday's jump, I see no reason to change your tune.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Amphastar Pharmaceuticals, Inc. Stock Quote
Amphastar Pharmaceuticals, Inc.
$34.80 (3.26%) $1.10
Cirrus Logic, Inc. Stock Quote
Cirrus Logic, Inc.
$78.87 (-0.74%) $0.59
Vanguard World Fund - Vanguard Health Care ETF Stock Quote
Vanguard World Fund - Vanguard Health Care ETF
$239.34 (0.79%) $1.87

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning service.

Stock Advisor Returns
S&P 500 Returns

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 05/24/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.