AppFolio (APPF 12.05%) stock was beating the market Tuesday morning, trading up by more than 10% as of 11:40 a.m. ET compared to a 0.3% increase in the S&P 500. This boost added to big recent gains from the software tech specialist. Shares are up by more than 40% so far in 2024, while the wider market has gained about 10%
Tuesday's rally was sparked by news that AppFolio will be joining a new index.
Welcome to the index
AppFolio stock will soon become a component of the S&P Mid-Cap 400 Index, according to a late Monday press release. That change will have no impact on the company's growth or earnings prospects, yet it does mean potentially higher demand for the stock over the next week or so.
That's because many mutual funds and exchange-traded funds seek to replicate the returns of the various S&P indexes; those that do so have to accumulate shares of their new components when stocks are added to them, temporarily boosting demand for those shares. So stocks often see a brief uptick on news that they'll join an index, particularly the most widely followed ones like the S&P 500 and the Dow Jones Industrial Average.
Looking ahead
Investors shouldn't let this news sway them toward or away from investing in AppFolio stock. Focus instead on how well its real estate platform is doing at winning market share and how well the company is doing in its efforts to reach sustainable profitability. The news has been good on these points lately.
AppFolio in late January announced 39% higher sales and a return to positive operating profits. "We are truly building the platform where the real estate industry comes to do business," CEO Shane Trigg said in a press release.
Management is projecting that sales will rise by over 20% this year and that adjusted profit margins will land between 21% of sales and 23% of sales. Achieving or surpassing those goals would be the most direct path toward higher shareholder returns in 2024.
