Why Revolve shares jumped 24% in June

What happened

Actions of Revolution group (NYSE: RVLV) spent the first half of the month in a trading range before jumping the last two weeks of June. What seemed to drive the shares up was the news of June 17 that the action was going to join the Russel 3000 index as of June 28. By default, Revolve will also be added to the Russel 2000 and Russel 1000 index.

RVLV given by YCharts

Following the news, stocks rose sharply, ending the month up 24.3%, according to data provided by S&P Global Market Intelligence.

So what

While the addition to the index has no impact on Revolve’s long-term business performance, it is important in the very short term, as $ 10.6 trillion in assets is compared to Russell’s U.S. indices. This means that large financial institutions that oversee various mutual funds and exchange traded funds that track the Russell indices must purchase Revolve shares, which may temporarily increase the share price.

In a statement, Revolve CFO Jesse Timmermans said: “Joining the Russell 3000 Index will increase Revolve’s exposure to the investment community at an exciting time after achieving record profitability and cash flow in 2020 and returned to strong year-over-year growth in sales in the first quarter of 2021 as economies began to reopen. ”

A group of friends at a party taking a selfie.

Image source: Getty Images.

Now what

Revolve shares have more than doubled since the start of the year and look like a good reopening game. It’s one of the leading online retailers for Millennials and Gen Z customers looking for the right outfit for social occasions. The stock’s surge this year seemed justified after a strong first-quarter earnings report in May, which showed a 22% year-over-year increase in sales.

Although Revolve reported strong demand for dresses and other styles related to social gatherings, it also continued to record strong sales performance in home categories including beauty, lingerie and athletic wear. This is a great opportunity for Revolve to expand beyond its pre-pandemic fashion clothing niche and capture a higher share of its customer spending going forward.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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