Square Inc (NYSE:SQ) stock has more than tripled over the past twelve months.

Only seven other stocks trading on the NASDAQ, NYSE and AMEX rose more than SQ over this period. Even high-flying stocks such as Alibaba Group Holding Ltd (NYSE:BABA) and Tesla Inc (NASDAQ:TSLA) didn’t beat SQ, although NVIDIA Corporation (NASDAQ:NVDA) comes close.

Square is a payments company. Unlike Paypal Holdings Inc (NASDAQ:PYPL), which offers digital payment services for both merchants and consumers, Square focuses mostly on the merchant side. Square provides apps and hardware such as the Square Reader and the Square Chip and Contactless Reader.

These turn tablets and smartphones into point-of-sale devices, allowing customers to go cashless.

But SQ offers more than just mobile payments; it also earns revenue from subscription-based services. These include Square Capital, which offers small business loans, Square Instant Deposit and Caviar, which provides delivery services for restaurants.

Like Alibaba’s Ant Financial, Square uses the payment data it collects to assess credit risk when extending loans.

Square recently partnered with SAP SE (ADR) (NYSE:SAP), a major enterprise software developer, to integrate their systems. And in September, SQ applied for an industrial bank license.

Square is a major player in fintech (technology and innovation in financial services). The Global X FinTech ETF (NASDAQ:FINX) lists SQ as its fourth largest position.

Square had a great quarter, but the stock slid; perhaps investors were concerned over the run-up in its stock price.

Should you buy Square stock? 

Let’s look at some of its strengths.

Square Stock: Competitiveness

Amazon.com, Inc. (NASDAQ:AMZN) is a source of anxiety for investors and businesses. Recently, MarketWatch reported that business leaders are more concerned about the impact of Amazon than the impact of Donald Trump.

Investors want to find stocks that are “Amazon-proof”.

Here’s the good news for Square: Amazon tried competing with it a few years ago, and it didn’t work out very well… for Amazon.

Amazon tried offering its own point-of-sale system, Amazon Register, but ended the program after little more than a year.  

Amazon can throw some firms out of business by beating them on price, but this might not work against Square.

According to Investor’s Business Daily:

“Among the larger businesses that Square serves — those doing more than $200,000 in annual sales — 60% have received lower-price offers from Square’s competitors, Beck said. But 80% say that they plan to stay with Square for more than a year.”

If Square were losing ground, we would see the gross margin for its core business decline. But this isn’t happening; it’s holding steady at around 35%.

 

Square Stock: Rapid Growth

If Square were a laggard, it wouldn’t make sense for the stock to trade at 7.5 times sales and 20 times book value.

But Square shows no signs of slowing down, in fact it may be picking up. It grew its third-quarter revenue at a 33% rate year-over-year, from $439 million to $585 million.

Since 2012, Square’s revenue is up a whopping 739%.

Square Stock: Diversifying Gross Profit

In a recent article on Facebook (NASDAQ:FB), I raised some concerns over its dependence on advertising. Having all your eggs in one basket raises risks and this remains the case with Facebook, which derived 97% of its revenue from advertising in 2016.

Square derived 87% of its revenue from one source, transaction-based payments, but it has made some progress in diversifying gross profits.

A few years ago, 106% of Square’s gross profit came from this source. That’s not a typo; transaction-based revenue accounted for more than 100% of gross profit because Square lost money on hardware sales and its deal with Starbucks Corporation (NASDAQ:SBUX).

But, as this chart shows, Square’s dependence on transaction-based services has declined from 106% of gross profits over the twelve months ending on March 31, 2015 to 83% over the past year.

Square’s earnings from subscription-based revenue continues to climb; this accounted for 6.5% of gross profit in the twelve months ending on March 31, 2015, but 21.4% of gross profits over the past twelve months.  

Still, I’m not sure I would purchase SQ right now. Yes, Square stock is doing well, and revenue growth may be picking up, but this is probably already priced in to the stock.

According to Nomura analyst Dan Dolev:

“The main problem is that with the stock up 169 percent year to date, being priced for perfection would be an understatement.”

As of writing, Lucas Hahn did not hold a position in any of the aforementioned securities.