Shares of connected-fitness company Peloton Interactive (PTON 0.34%) were up modestly on Monday, likely because it's been selected to be a part of the Nasdaq 100 Index. As of noon EST, the stock was up almost 5%.
The Nasdaq 100 is a group of companies selected for their large size and for their robust growth. Some of the most recognizable names on the stock market are present, including Apple, Amazon, and Starbucks. Investors love perusing the index's list of companies to generate investing ideas, since the index has beaten the returns of the S&P 500 Index in 10 of the past 12 years.
Every year, Nasdaq makes changes to the Nasdaq 100 list. Joining Peloton this year are five other companies including hot pandemic stocks like Okta and Match Group. Six companies are leaving the index to make room for the new ones, including some harder hit companies like Expedia Group and Ulta Beauty.
Regular investors may be buying Peloton stock on this news, since it's joining an elite group of stocks. It could be seen as validation of the company's future prospects. But a move like this also brings in other buyers. There are various index funds that track the performance of the Nasdaq 100, and these will need to buy and hold Peloton stock for their funds.
Long term, however, this isn't the kind of news that investors should be most interested in. More important are the business fundamentals. Peloton management has an ambitious vision to one day have 100 million subscribers. But right now its connected stationary bikes and treadmills are so popular that the company can't keep up with demand, which could cause it to cede some market share to competitors. Right now, if I were a shareholder, I'd be eagerly awaiting an update on these supply chain issues.