Apparel chain Urban Outfitters, Inc. (URBN) is being removed from the 澳洲幸运5官方开奖结果体彩网:Standard & Poor's 500 Index, and the stock sank more than 3 percent in the wake of this news. S&P's new guidelines for membership of its flagship index require a 澳洲幸运5官方开奖结果体彩网:market cap of $6.1 billion, a 15 percent increas🙈e over the prior year. Urban Outfitters has a market cap of $2.67 billion as of March 2017 after sliding nearly 50 percent over the trailing 24 months.

Index inclusion can be an important driver of demand for some stocks. Many 澳洲幸运5官方开奖结果体彩网:exchange-traded funds (ETFs), 澳洲幸运5官方开奖结果体彩网:mutual funds and managed vehicles track indexes, so these 澳洲幸运5官方开奖结果体彩网:portfolios are forced to purchase the shares of any applicable index 澳洲幸运5官方开奖结果体彩网:constituents. Conversely, these funds are no longer required to hold stocks that are removed from their stated index, which could have negative effects on the demand for shares. The S&P 500 is the most tracked index of U.S. equities, so the magnitude of the 澳洲幸运5官方开奖结果体彩网:index effect could potentially be very large for joining or leaving the ranks. (See also: How Do Indexes Determine Which Stocks Are Removed or Added to Them?)

There have been numerous attempts to study this phenomenon, but there is mixed evidence on the magnitude or the index effect. Comprehensive for recent years suggest that removal from the S&P 500 has a very limited impact on short-term pricing, and long-term pricing studies are complicated by other factors that affect stock prices, such as 澳洲幸运5官方开奖结果体彩网:earnings reports, qualitative news or industry trends. 澳洲幸运5官方开奖结果体彩网:Portfolio managers of index-tracking funds generally have some wiggle room regarding the timing of 澳洲幸运5官方开奖结果体彩网:rebalancing, so it is unlikely that there will be a very short time span in which every Urban Outfitters share is unloaded. It also appears that potential incoming and outgoing constituents are identified far in advance of official confirmation, which influences the market prices. Market cap 澳洲幸运5官方开奖结果体彩网:weighting also plays a role, as stocks near the cusp of inclusion tend to make up a very small portion of the S&P 500. (See also: 澳洲幸运5官方开奖结果体彩网:Computing Indexes.)

Falling out of the S&P 500 cannot be considered a good thing in this context, but this development is a symptom of Urban Outfitters' struggles rather than the result of a major catalyst. Consumer trends enabled by Amazon.com, Inc. (AMZN) have wreaked havoc on the traditional retail industry by intensifying price competition, squeezing margins and forcefully reducing the prevalence of 澳洲幸运5官方开奖结果体彩网:brick-and-mortar retailers. Urban Outfitters has not been spared any hardship, but the company has maneuvered relatively well to manage the transition. Nearly one-third of the company's sales are made online, which is high among large specialty apparel retailers. Urban Outfitters has also focused on broadening its offering by adding non-apparel categories. (See also: 澳洲幸运5官方开奖结果体彩网:Has Urban Outfitters Lost Its Way?)

Urban Outfitters has nonetheless reported slowing revenue growth, margin contraction and uneven earnings growth. The company's outlook is not much better, with analysts expecting 3 percent revenue growth in the coming years. (See also: Urban Outfitters Wobbles After a Mixed Q4 Report.)

The outlook on earnings growth is more bullish, with a five-year analyst 澳洲幸运5官方开奖结果体彩网:consensus CAGR of 13 percent. Urban Outfitters pays no dividend, so holders are implicitly anticipating 澳洲幸运5官方开奖结果体彩网:appreciation due to fundamental growth. It is difficult to construct a bull narrative based on Urban Outfitters' fundamentals as of March 2017, although the stock does compare favorably to other apparel retailers struggling under the same circumstances. (See also: What Makes Urban Outfitters a Strong Sell?)

Looking at a battery of 澳洲幸运5官方开奖结果体彩网:relative valuation metrics, Urban Outfitters is relatively inexpensive compared with its industry peers. The stock's valuation 澳洲幸运5官方开奖结果体彩网:multiples are slightly below average nearly across the board, with 澳洲幸运5官方开奖结果体彩网:PEG ratio representing an especially attractive metric. Assuming five-year analyst earnings growth forecasts are reliable, then Urban Outfitters has an excellent growth-adjusted earnings multiple. Considering the company's efforts to position itself well for the continued growth of 澳洲幸运5官方开奖结果体彩网:e-commerce, this could be an opportunity for investors seeking ex𓂃posur꧃e to the apparel retail space. Investors should not be dissuaded by Urban Outfitters' exit from the S&P 500 Index.