Match Group (MTCH  ) jumped by more than 8% following an announcement that the company would be added to the S&P 500 (SPY  ) on September 20. However, shares gave up some of these gains in the ensuing sessions. Match Group will replace Perrigo Company which will be joining the S&P MidCap 400.

Currently, Match Group is valued at around $40 billion. It owns several dating companies such as Hinge, Tinder, and OKCupid. It was spun off out of IAC (IAC  ) in July of last year and is up around 50% since then.

When a stock is included in an index, especially a big one like the S&P 500, it will likely lead to buying as many passive and active strategies essentially track the S&P 500. However, it doesn't change anything about the stock in terms of its business or earnings power so often traders will sell into the initial pop.

Stock Price Outlook

Match is certainly an expensive stocks considering that it has a price to earnings ratio of 58 and a price to sales ratio of 16. However, recent history shows that just because a stock has a high valuation doesn't necessarily mean it's a bad investment. And, Match does have some characteristics in common with recent big winners.

For one, the stock gives investors exposure to a broad theme - online dating - and that is likely to keep growing. Further, the company is aggressive in terms of acquisitions, so if another online dating site gets popular, it's likely to take a stake or buy it outright. Additionally, it seems hard to imagine that online dating will become less popular given that people are spending more time in the digital world and less time in physical spaces where people used to meet like church, through family, bars, or school.

Additionally, even though Match has a high valuation, the business is already profitable and expected to generate nearly $1 billion in cash flow next year. The company has also been successful in figuring out ways to increase monetization by offering premium features.

In terms of Match's technicals, the stock has essentially been range-bound since last November. Over this time, analysts' EPS estimates for 2021 and 2022 have gradually moved higher. Another positive is that margins have been moving higher as well. Further, the company is forecast to grow revenues by 30% on an annual basis for the next 5 years, and it has a high-quality management team. Given these reasons, investors should look to accumulate on weakness despite Match's right valuation.