Texas Pacific Land Stock Blasts Off To Record High In After-Hours On Imminent S&P 500 Index Inclusion: Retail Anticipates Short-Squeeze

Shares of Texas Pacific Land Corp. ($TPL) climbed sharply in Thursday’s after-hours session after S&P Dow Jones announced that the Dallas, Texas-based company will join the prestigious S&P 500 Index.

Texas Pacific Land is a landowner, with the majority of its interest in the Permian Basin, which is a large sedimentary basin in the southwestern U.S. and has the highest producing oilwells in the country.

The company does not produce oil per se but its surface and royalty ownerships provide revenue opportunities throughout the lifecycle of an oilwell. 

Texas Pacific Land, currently an S&P MidCap 400 component, will replace exploration and production company Marathon Oil Corp. ($MRO) in the S&P 500 Index, effective before the market opens on Nov. 26. The latter is expected to be acquired by Conoco Phillips ($COP) on Nov 22, pending final closing conditions.

Texas Pacific Land’s place in the S&P MidCap 400 Index will be taken up by S&P SmallCap 600 component Atlas Energy Solutions, Inc. ($AESI). 

Following the announcement, Texas Pacific Land shares added 4.58% to $1,584.94 in Thursday’s after-hours session, on top of the 4.47% gain in regular trading.

If the after-hours gains are sustained in Friday’s session, Texas Pacific Land’s shares are on track to enter uncharted territory, having nearly doubled in the year-to-date period.   

The S&P 500 Index, a market-cap weighted index, is considered the best single-gauge of large-cap U.S. equities and includes 500 leading companies, covering about 80% of available market capitalization. 

The eligibility criteria for S&P 500 Index inclusion are a market capitalization of $18 billion or more; a float-adjusted market-cap that is at least 50% of the unadjusted minimum market-cap threshold; an investable weight factor of at least 0.10; and a listing in either NYSE or NASDAQ and a primary listing in the U.S. 

S&P 500 components should have positive as-reported earnings for the most-recent quarter, as well as for most of the recent four quarters.

There is a trading-volume criterion as well.

Index inclusion is typically positive for stocks, as funds holding portfolios mirroring the index buy them to maintain the respective weightings of the component stocks. The stock also benefits from increased volume and liquidity due to purchases by index funds and ETFs.

TPL sentiment and message volume November 21, 2024,  as of 11:29 pm ET | Source: Stocktwits

On the Stocktwits platform, retail sentiment toward the stock improved from 'neutral' (46/100) a day ago to 'extremely bullish' (91/100) following the announcement concerning the S&P 500 inclusion. The stock also saw a spurt in message volume to ‘extremely high’ levels.

A retailer on the platform flagged a potential  short-squeeze rally. Yahoo Finance data shows 5.51% of the outstanding shares are held short.