Square Inc (NYSE:SQ) has been quite volatile since its Wall Street debut, with SQ stock swinging big several times since its November, 2015 IPO. Most recently, after climbing up to over $15 a share in early 2016, Square stock crashed to about $9 a share after a brutal May earnings report.
Since then, however, SQ stock has been fighting back after a much better August report, and it is now back around $12 a share.
So is Square Inc worth a shot, or is this volatile mobile payments stock still dead in the water?
Personally, I think the rally is over with — and if you haven’t bought into SQ yet, you’ve missed your boat and will have to wait for the next pullback.
What’s Working Against SQ Stock
For starters, let’s revisit that spring earnings report. When SQ stock went public in late 2015, it featured brisk revenue growth but no profits, and that trend has continued for the mobile payments company over the last year. May’s report showed tremendous top-line expansion of 51%, but a worse than expected loss. In fact, the shortfall was 26% of revenues, which is a huge cash burn.
Equally disturbing is the ongoing ligation over core Square technology that could result in continued pressures, even if they are just legal costs and not in the form of a massive settlement or judgement.
Just a few weeks ago, Square Inc reported its most recent quarterly results and saw improvement, including a narrower loss and a brisk increase in payment volume. Shares have been rising since then as a result, but it’s clear there is a lot of work yet to do — which is why even after the recent comeback, shares are right back where they were immediately after the 2015 IPO of SQ stock.
Square Inc Has Tough Battle in Mobile Payments
Wall Street has been trying to decide whether SQ stock is a good investment because investors believe in mobile payments as a megatrend that will reshape commerce. I am in that camp personally, and I think the technology has a lot of potential … but I don’t necessarily believe Square has to be a part of that future.
Sure, SQ stock has a lot of potential based on a comparatively strong brand and footprint in the mobile payments space, along with continued top-line growth that is objectively impressive. However, there are plenty of other players out there from Paypal Holdings Inc (NASDAQ:PYPL) to efforts like Apple Pay from tech giant Apple Inc. (NASDAQ:AAPL) that are also showing promise.
Furthermore, CEO Jack Dorsey has his hands full as he splits time between SQ stock and Twitter Inc (NYSE:TWTR) — another money-losing tech stock that has promise, but not a lot of profits to show investors. It’s hard enough to run one of those companies, let alone two.
For all these reasons and more, it’s not surprising that analysts have started to cool on Square Inc.
SQ stock was just downgraded by BTIG Research, from a “buy” rating to a “neutral” rating on Monday. The firm previously had a $12 price target, and with that mark met, the analysts are now convinced the run is over.
For those who bought Square Inc at the bottom, good for you. And to be honest, I may be bottom fishing myself the next time this volatile tech player gets down in the single digits based on its history of snapping back quickly.
But at $12 a share currently, you’re buying a top, not a bottom. Sit this one out for now.
Jeff Reeves is the editor of InvestorPlace.com and the author of The Frugal Investor’s Guide to Finding Great Stocks. Write him at editor@investorplace.com or follow him on Twitter via @JeffReevesIP.
