Penn Entertainment Departs from S&P Mid-Cap Index, Enters Small-Cap Ranking
In a significant change, Penn Entertainment (NASDAQ: PENN) has been downgraded from a mid-cap stock to a small-cap stock. This is due to a massive 35.39% loss experienced over the past year, resulting in the company's market capitalization dropping below the usual $2 billion to $10 billion range for mid-cap stocks.
S&P Dow Jones Indices made this decision official on Friday, announcing that Penn's shares will be transferred from the S&P MidCap 400 Index to the S&P SmallCap 600 Index. As of Friday's closing price, the company's market capitalization was $2.58 billion. While the $2 billion to $10 billion range is generally considered the mid-cap range, index providers and funds often have some flexibility with this definition, especially at the higher end.
The main reason for the move to small-cap territory is the shrinking market value of Penn and the increasing market values of some small-cap companies, making them suitable additions to the mid-cap gauge.
The S&P Dow Jones Indices stated in their announcement, "All companies being added to the S&P MidCap 400 are more representative of the mid-cap market space, and all companies being added to the S&P SmallCap 600 are more representative of the small-cap market space."
The shares of Penn dropped slightly in the after-hours session shortly after this news was released. The index changes will be implemented on June 24.
Penn Entertainment's Index Changes History
When the online sports betting market was booming in March 2021, Penn's stock touched all-time highs and was included in the S&P 500, a well-respected benchmark of US equities. However, the company's slide began around this time, forcing the index provider to remove Penn's shares from the S&P 500 in September 2022.
After being kicked out of the S&P 500, Penn found a place in the S&P MidCap 400 Index. This index, like the others mentioned, is market cap-weighted, meaning the biggest stocks by market value receive the highest weights in the index. As of June 6, Penn currently holds the 383rd position out of the 400 companies in the mid-cap index and makes up just 0.097% of the index's total weight.
Is This All Bad for Penn?
At first glance, it may seem that Penn's stock is losing ground by moving from mid-cap to small-cap status. This, combined with the anticipated selling from managers tracking the S&P MidCap 400, could make some investors uneasy.
On the other hand, mid-cap stocks are often considered undervalued when compared to larger and smaller companies. This means that small-cap funds, which hold way more assets than their mid-cap counterparts, are likely to buy Penn's shares. Additionally, active fund managers and passive products following the S&P SmallCap 600 Index will be compelled to purchase shares of Penn, potentially offsetting some of the selling by mid-cap managers.
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