Despite its name, there’s nothing square about Square Inc (NYSE:SQ). Within the vast, competitive field of consumer technology, SQ has one of the most exciting innovations. Payment transaction services is a big-league deal, especially if you’re a small business owner. The company’s super-cool credit card reader is compatible with a large number of popular smartphones, opening up tremendous possibilities. That’s the primary reason why people who bought Square stock love it so much.
But like any relationship, there is such a thing as going in too deep. One of the long-standing concerns regarding SQ stock is CEO Jack Dorsey.
Now, there’s no question this man is a genius and he can provide the Midas touch to any organization. The issue, of course, is that Mr. Dorsey is also the head executive of Twitter Inc (NYSE:TWTR). That has a lot of SQ investors thinking, even if it’s just to themselves.
If you haven’t noticed, Twitter as a stock sorta, kinda, sucks. No matter how you look at it — whether against its initial public offering, or from the start of every year except this one — you will encounter nothing but pain and sorrow.
I’m not pinning that entirely on Dorsey. However, it is worth reminding that our prolific tweeter-in-chief has done almost nothing for Twitter the investment. It then is fair to ask how that might affect Square stock.
Let’s be frank — SQ stock is not backed by robust fundamentals. There’s a real argument that Square stock’s momentum is a combination of innovation and hopes and dreams. As InvestorPlace feature writer James Brumley notes, sales “continues to rise, but the loss continues to widen. It’s not the forward progress one would hope to see by this point.” Indeed, the profitability of SQ stock leaves a Titanic-sized gap for improvement.
Wall Street Is Loving Square Stock
It’s true that investors should be aware of these problems. However, I believe it doesn’t need to go beyond the usual standard of care for any financial asset. Yes, there’s a lot of ugly in Square stock today, but it’s all about what it may be tomorrow.
For starters, Wall Street is loving the play for SQ stock. Forecasting fundamentals that can shift rapidly as a tailwind, a number of analyst firms have upgraded their rating on SQ. Brumley neatly summarizes the sentiment. “When one person or organization says it, it’s dismissible. When two say it, it’s curious. When three say it, there’s something to it. But when four say it, it’s difficult to disagree with the budding consensus.”
The catalyst for the bullishness is the company’s venture into business lending. Granted, it wasn’t much of a factor when the idea was initially conceived.
Even in its initial run, a lot of skepticism kept the lending division from truly affecting Square stock. However, in the second quarter of 2016, Square Capital’s loan origination volume jumped 123% year-over-year.
Hello Wall Street! SQ stock is up 38% since the news first broke.
SQ Isn’t Just a Solution-Maker — It’s an Innovator
But what I really want to key in on is the speed and convenience of their lending platform. Jason Del Rey of Recode writes that SQ “typically provides the business with the funds within just a few days of the business’ acceptance of the loan offer — an attraction to small businesses that don’t have the time or patience to wait for a loan from a traditional bank” (emphasis mine).
Square didn’t just develop a nifty product. They are actually challenging the establishment, but in a way that appeals to everyone. It’s the same reason why I’m bullish on PayPal Holdings Inc (NASDAQ:PYPL). We can talk all day about stats and figures. Ultimately, PayPal represents the next stage in monetary evolution. I can say the same thing about SQ and its affect on small businesses.
And if you’re still not convinced on Square stock, look at it this way. President Donald Trump has made a “yuge” deal about making America great again, and putting America first With such deep-seated patriotism, he has no choice but to support small businesses. That increasingly amps the revenue potential for SQ stock.
I don’t want to go so far as to say that Square is a guaranteed mover. Certainly, there are risk variables and the company can’t afford to lose fiscal discipline. That said, their industry is on the upswing, the analysts are loving it and most importantly, investors are buying. Those are the factors for SQ stock that would continuously give me a good night’s sleep.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.