Investors of social media company Reddit (RDDT -5.15%) received great news last week: it will be joining the S&P 500 index on Aug. 18. The index includes the top companies on U.S. markets. For a stock to make it onto the index, it's a sign of its size, success, and profitability.
Shares of Reddit jumped on the news last week. However, on a year-to-date basis, they're still down 23%. At around $178, they're also roughly 37% below their 52-week high of $282.95. Could this news send them soaring back to those levels?
Image source: Getty Images.
Why Reddit's stock could rally further on this news
It's a big deal for a stock to be added to the S&P 500. Many funds track the index, and when a stock is added to it, they have to buy it to ensure they match its composition. Thus, there will be new purchases of the stock, potentially lifting its share price in the process.
Many investors buy S&P 500 index funds as a way to gain exposure to the overall market, as it gives them diversification across many sectors. Stocks that get added to the index usually experience increases in their share prices afterward. Reddit, which has been having a lackluster year in 2026, may have more room to rise higher in the near term.
NYSE: RDDT
Key Data Points
Is Reddit's stock a good buy right now?
At around $34 billion in market cap, Reddit isn't fairly large when it comes to the tech sector. The company is, however, experiencing tremendous growth and may grow significantly more over the years.
In its most recent quarter, which went up until the end of June, it grew its revenue by an impressive 61%, totaling $805 million. And it generated a strong profit of $253 million, which was 31% of its top line.
At more than 41 times earnings, its valuation isn't terribly cheap, but for the growth it's experiencing and potential it possesses to become much larger in the future, it may be justifiable. Although millions of users rely on chatbots for answers these days, there are concerns about their trustworthiness and reliability, and Reddit's online communities may offer more value for people seeking balanced options. That's why I'm not concerned about the business, as it may remain a popular destination for users.
While the social media stock may not surge back to its 52-week high right away, as that would involve a significant rally, it can be a great buy for investors today, as it has plenty of upside in both the short term and over the long haul.
