What happened
Gogo ( GOGO 8.29% ) shareholders beat the market on Wednesday as the stock gained 15% at the open before settling to an 8% increase by 1:15 p.m. EDT. That boost compares to a 1.4% slump in the S&P 500.
The spike pushed the airplane broadband provider’s stock over 50% returns so far in 2022, compared to a 6% slump in the broader market. It was powered by news that Gogo’s stock is about to join an important index.
Image source: Getty Images.
So what
S&P Dow Jones Indices announced late on Tuesday that Gogo will join the S&P SmallCap 600 index fund on Friday, April 8. That index aims to measure the performance of profitable U.S. companies with market capitalizations ranging from $850 million to $3.7 billion. Gogo is currently valued at $2.3 billion.
While this announcement has no bearing on Gogo’s business prospects, it does imply higher demand for its stock over the short term. Many index and managed funds track the performance of the S&P SmallCap 600 index, and so any incoming member can expect to see elevated buying interest when it joins. The stock’s increase today reflects that anticipation of higher demand for the stock.
Now what
Investors looking for positive long-term returns from the stock should focus more on its operating prospects, which are positive. Gogo said in early November that sales would likely reach $335 million in fiscal 2021. In early March, the company edged past that upgraded forecast during a sharp rebound in air travel.
CEO Oakleigh Thorne and his team are expecting more growth ahead in 2022 thanks to the deployment of Gogo’s 5G network. Investors are just as excited about the prospects for improving free cash flow trends after the company generated $58 million in free cash last year but plans to hit $125 million in 2023.
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.
