With so much attention paid to President Trump’s apparently favorite company Twitter Inc (NYSE:TWTR), it’s easy to forget that dual-CEO Jack Dorsey also leads Square Inc (NYSE:SQ). While both companies are enjoying a strong showing in 2017, no comparison exists between SQ stock and TWTR. While Twitter is attempting to justify itself as a viable investment, SQ needs no such justification.
The results are painfully obviously to see.
Year-to-date, Twitter shares are up nearly 25%, a good-sized lead over the benchmark SPDR S&P 500 ETF Trust (NYSEARCA:SPY). But against the SQ stock price, TWTR might as well be a boring money market fund. Up nearly 188% YTD, SQ rewarded investors who patiently endured volatile sessions throughout 2016.
Its “lifetime haul” now stands at 205%. But as we all know, nothing lasts forever. Technology companies don’t exactly have the best reputation for sustaining meteoric gains. Once the bullish fervor for SQ stock dries up, the bears come in and do their business.
While the current optimism is understandable, let’s be real: great financials don’t support the SQ stock price. In fact, many of their metrics are middling at best. It’s actually an old criticism that, at least from the bearish perspective, hasn’t improved. Earlier this year, I wrote:
“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.”
Don’t Prematurely Doubt the SQ Stock Price
I think it’s telling that Brumley is still cautious on Square. All investors seeking to acquire SQ stock should listen carefully to his words. Agree or disagree, as I learned in debating class, you don’t fully understand your own position until you understand your opponent’s.
In his assessment, Square has entered deeply into overbought territory. Brumley writes, “They say a picture is worth a thousand words and ‘they’ are right. This picture of the SQ stock price rally is impressive to be sure, but arguably too impressive. This is what, in trading circles, is called a ‘bubble’ that’s been inflated more by hype and less by plausible, within-reach reality.”
Furthermore, Brumley asserts that “The ingredients for a meaningful meltdown are in place. It’s just a matter of finding the right catalyst (or for the bulls, avoiding that catalyst).” His point is especially meaningful for people considering SQ stock at this juncture.
As I’ve personally stated many times about other high-flyers, like Advanced Micro Devices, Inc. (NASDAQ:AMD) or Alibaba Group Holding Ltd (NYSE:BABA), it’s not about what shares did, it’s about what they will do. No matter how bullish you are on the SQ stock price, you can’t ignore the fact that it’s riskier now than it was earlier this year.
Nevertheless, I’m going to take the unenviable role of disagreeing with our feature writer. While the SQ stock price is technically overheated, you need to wait until the chart pattern shows a “psychological breakdown” before dismissing it.
Here’s what I mean: Several times, SQ hit overbought territory on the relative strength indicator. Each time, shares soared higher. To have confidence in the bearish position, SQ must suffer a correction — and then fail to exceed prior highs. Otherwise, it may be premature to call “time” on this party.
SQ Is a Futurist’s Investment
As previously mentioned, Square’s financials leave a lot to be desired. However, I’m a big believer in its industry fundamentals.
I’ve argued many times that technology has radically transformed our lives in virtually all sectors. Finance and business transactions, on the other hand, are comparatively anachronistic. What Square does is to give the little guys the same tools that the big guys leverage.
Indeed, it’s the Bitcoin argument. People get into all manners of convoluted conversations about Bitcoin and the blockchain. What really matters is that it gives all people — irrespective of color, borders, status, and any other artificial barrier — open and free access to trade and transactions.
Bitcoin is beautiful. In a more directed manner, Square is also beautiful. And that’s why you shouldn’t give up on SQ stock until the writing is truly on the wall.
As of this writing, Josh Enomoto is long Bitcoin.