What happened

The stock market's relatively smaller companies dream of inclusion on a major equity index, as it raises their visibility and puts them on the radar of index funds. Tuesday was Avid Bioservices' (NASDAQ:CDMO) turn in the spotlight. News that the company will soon be a component of a notable index sent its shares 14% higher on the day.

So what

Effective prior to the start of trading this Friday, Oct. 29, Avid will join the S&P SmallCap 600 index. It is replacing current index component Cadence Bancorporation, as that company is being acquired by peer financial sector company BancorpSouth. The deal is likely to close at, or close to, that date.

A woman looking at a set of indexes and graphs.

Image source: Getty Images.

As its name implies, the S&P SmallCap 600 index tracks 600 notable small-cap stocks in order to provide a sense of how that asset class is performing overall. 

In the press release trumpeting its graduation to the index, Avid -- a biologics contract development and manufacturing organization, or CDMO -- implied that it is well deserving of inclusion. This "is a further demonstration of the momentum that Avid continues to generate as we successfully execute against our comprehensive growth strategy," the company quoted CEO Nick Green as saying.

Now what

While a spot on a well-known index is one of the best free pieces of publicity a company can receive, we should remember that it changes little to nothing about its fundamental business. Avid still has to deliver for its shareholders, and now it has to perform impressively enough for those index funds to consider it a worthy portfolio addition.

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.