On Sept. 21, Bloom Energy (BE -11.57%) joined the S&P 500. The announcement that the industrial company would be added to the index was made on Sept. 4, and its share price rose about 8% in the lead-up to its inclusion.
Bloom Energy stock was extremely expensive, trading at nearly 400 times trailing earnings, when it joined the S&P 500. Its valuation has dropped significantly since then, in part because of earnings growth, but also because its stock has declined by 29% (as of Oct. 23).
Now that Bloom Energy has gotten cheaper, is it worth considering for your portfolio? Before you buy, it’s worth knowing the historical track record for companies in similar positions.
Image source: The Motley Fool.
Joining the S&P 500 isn’t a buy signal
It might seem that S&P 500 inclusion should act as a tailwind for a company’s share price, with demand increasing as passive S&P 500 index funds buy the stock. The data doesn’t bear this out.
Fisher Investments reviewed returns for companies added to the S&P 500 from 2017 to 2020. Six months after joining, 45 new additions lagged the index by an average of 2.1 percentage points and a median of 5.9 percentage points. The 36 stocks with enough return history trailed by an average of 6.6 and a median of 8.4 percentage points after one year.
A study published in February 2026, “S&P 500 vs. Peer Firm Performance: Does Index Inclusion Matter?,” found that S&P 500 additions significantly underperformed relative to similar companies that remained outside the index. The total underperformance was:
- 28% after one year
- 33.1% after two years
- 40.2% after three years
- 55.2% after five years
Based on this research, new additions to the S&P 500 index have lower average returns than both the index as a whole and similar companies outside it.
Extremely high valuations can also depress returns
Bloom Energy isn’t just notable for recently joining the S&P 500. It also still has an extremely high valuation, trading at 120 times trailing earnings as of Oct. 23. The S&P 500 as a whole trades at 26 times trailing earnings.
Studies going back to the 1960s have found that glamour stocks, meaning stocks trading at high price-to-earnings (P/E) ratios, lag the market by around 3% to 4% per year. More recently, a January 2025 study by FTSE Russell Insights found that higher forward P/E ratios are linked to lower long-term returns.
There are companies that have been able to maintain high valuations and outperform the market, with Tesla and Palantir Technologies being two notable examples, but they’re few and far between.
BE – Bloom Energy
$196.58-$25.72 (-11.57%)
NYSE · As of 2:15 PM ET 10/30/26
Is it a good time to invest in Bloom Energy?
Bloom Energy reported record revenue of $1.2 billion in the third-quarter, up 138% year over year. Diluted earnings per share (EPS) were $0.78, up from negative $0.10 a year earlier. Sales and earnings are both growing substantially due to data center power demand, which doesn’t look like it will slow down any time soon.
That said, the historical trends aren’t in Bloom Energy’s favor. It’s a recent addition to the S&P 500 and trading at a hefty premium, two characteristics that tend to result in underperformance. Some companies buck these trends, but with how expensive Bloom Energy remains, it’s a risky investment right now.
Source: www.fool.com — article syndicated from the publisher’s feed; all rights remain with the original publisher.
