What's Happening: Shares of Chart Industries (NASDAQ:GTLS) surged as much as 11% on Thursday after it was disclosed that the company would be added to the S&P Smallcap 600. That addition to the index will take place after close of trading on Monday, July 6. In addition to that, the company announced that it completed its acquisition of Thermax.
Why It's Happening: The S&P Smallcap 600 index tracks smallcap companies with market caps between $400 million and $1.8 billion in the U.S. To be included in this index companies must be financially viable, with reported positive earnings over the most recent quarter as well as the past four quarters. So, being added to this particular index suggests that, while a company is smaller in size, is has growing financial viability.
Many institutional investors track this particular index and because of that they need to buy stocks being added while selling those that are dropped. This institutional buying is what's driving the upward momentum in Chart Industries stock today.
While being added to an index brings in new investors, it doesn't change the long-term outlook for Chart Industries. What could potentially drive long-term results for the company is the completion of its Thermax acquisition, which was completed yesterday after market closed. It's a deal that the company expects to be accretive to earnings within the first twelve months and is expected to create growth opportunities in the years ahead. It's this type of value creating acquisition that will drive long-term value, not its inclusion in a stock index.
Matt DiLallo owns shares of Chart Industries. The Motley Fool recommends Chart Industries. The Motley Fool owns shares of Chart Industries. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.