What happened

Shares of Revolve Group (NYSE:RVLV) spent the first half of the month in a trading range before surging the last two weeks of June. What seemed to send the shares higher was news on June 17 that the stock was set to join the Russell 3000 index effective June 28. By default, Revolve will also be added to the Russell 2000 and Russell 1000 indexes.

RVLV Chart

RVLV data by YCharts

Following this news, the shares climbed sharply higher, finishing the month up 24.3%, according to data provided by S&P Global Market Intelligence

So what

While the addition in the index has no bearing on Revolve's long-term business performance, it is significant in the very near term, since $10.6 trillion of assets are benchmarked against Russell's U.S. indexes. This means big financial institutions that oversee various mutual funds and exchange-traded funds that track the Russell indexes have to buy Revolve stock, which can temporarily boost the stock price. 

In a statement, Revolve CFO Jesse Timmermans said, "Joining the Russell 3000 Index will increase Revolve's exposure to the investment community at an exciting time after we delivered record profitability and cash flows in 2020 and returned to strong year-over-year growth in net sales during the first quarter of 2021 as economies began to reopen."  

A group of friends at a party taking a selfie.

Image source: Getty Images.

Now what

Revolve shares have more than doubled year to date and look like a good reopening play. It's one of the leading online retailers for millennials and Gen Z customers looking for the right attire for social occasions. The stock's climb this year seemed justified after a strong first-quarter earnings report in May that showed sales increasing by 22% year over year. 

While Revolve reported strong demand for dresses and other styles related to social gatherings, it also continued to see strong sales performance from at-home categories, including beauty, intimates, and activewear. This is a great opportunity for Revolve to expand beyond its pre-pandemic niche of fashion apparel and capture a higher share of spending from its customers moving forward.

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.