What happened

Shares of Celsius Holdings (NASDAQ:CELH) were up 56% in December, according to data provided by S&P Global Market Intelligence. The beverage company's stock was up over 900% in 2020 and over 60% in November alone, so it's no secret it had upward momentum going into December. 

So what

In the last two days of December, Celsius Holdings surged almost 28%. This is because news broke that Celsius stock was being added to the S&P SmallCap 600 Index. It was announced on Dec. 30 and confirmed on Jan. 6 by Celsius. While being added to an index like this doesn't fundamentally improve its business, it does give the stock greater visibility. Furthermore, index funds tracking the performance of the S&P SmallCap 600 have to purchase shares of Celsius, bringing a wave of new buyers into the mix. 

Businessmen are carried sequentially higher into the air by rising arrows.

Image source: Getty Images.

There may also be a slight effect of a short squeeze in the equation as well. Early in 2020, Celsius Holdings stock was heavily shorted, with nearly 15 days to cover, according to data from Nasdaq. Trust me when I say that's a lot.

Over the course of 2020, short interest in Celsius stock steadily declined and is currently just 6% of the stock's float, according to Yahoo Finance, which is much more manageable. But it's not unreasonable to assume shorts continue to be squeezed out as the stock rises, contributing to the stock's stellar gains at least a little bit. 

Now what

Index funds and short-sellers have temporary impacts on a stock's movement. Long term, stocks go up and down because of business fundamentals; the same goes for Celsius Holdings. The company has strong customer loyalty and has enjoyed expanded distribution over the last year. But it will need to keep executing if it's going to justify its increasingly lofty valuation.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.