In a recent article, I wrote that Square Inc (NYSE:SQ) had become this generation’s Intuit Inc. (NASDAQ:INTU). SQ carved out a niche, a niche where much larger competitors failed to gain the trust of customers. Succeeding in this niche had driven the equity to a high valuation. Although SQ stock has fallen somewhat, Square remains a great company that’s overvalued by the market.

The San Francisco-based company has made its mark fulfilling a long-ignored small business need. Their core technology allows anyone with a smartphone to conduct secure credit card transactions. The innovation proved popular, warding off competition from larger companies like Paypal Holdings Inc (NASDAQ:PYPL) and Amazon.com, Inc. (NASDAQ:AMZN).

SQ Still Is OverValued

As a result of its success, buyers bid up the value of SQ stock to a high level. I argued the stock had been run up too high in my previous article. Soon after, BTIG analyst Mark Palmer cut it to a sell. This cut began a downtrend in the equity.

The stock price fell from the high $40s per share to the high $30s per share range. Mr. Palmer established a price target of $30. Our own Bret Kenwell agrees. He sees a price of $28-$32 per share would make a great entry point for a long-term buy. The equity will have to fall an additional 20% to meet that target.

Once Square stock becomes more fairly valued, reasons to buy remain numerous. Most years have seen annual growth rates in revenue above 30%. Moreover, the stock turned to profitability in the previous quarter, and profits are expected to keep climbing higher.

Square Inc Is Different from SQ stock

Also, it’s important that investors who follow this company view Square Inc in a different light than the stock. The company itself continues to make decisions that are both smart and well-timed. The latest decision involves Square testing the ability to buy and sell Bitcoin in mid-November.

This placed the company in the center of the craze that currently grips the cryptocurrency. Since Square involves itself in transactions only, Bitcoin’s direction matters little to the stock. As long as customers remain interested in Bitcoin and conduct Bitcoin purchases and sales, Square benefits in both cases.

Square has moved into other areas to help small and medium-sized enterprises as well, making itself a one-stop shop for small-business IT infrastructure. It created Square Register, a cash register for medium-sized businesses where Square acts as both hardware and software provider.

Additionally, Square includes applications that help small enterprises such as a platform for email marketing, an appointment calendar, and e-commerce integration. The company also provides banks loans and financing to small businesses.

Also, SQ has a wider moat than many believe. Taken individually, the company’s offerings present a narrow moat as several companies can now provide credit card processing or software to run a small business. Taken together, the company has built an ecosystem, one offered by much fewer companies.

Paypal and Shopify Inc (US) (NYSE:SHOP) will provide some competition. However, these companies only excel at some of the parts provided in the Square ecosystem. Since business owners have time for little else besides running their business, an ecosystem that provides a comprehensive payment and scheduling infrastructure provides a great benefit.

Concluding Thoughts on SQ stock

While Square brings valuable services to the small business market, investors should avoid SQ stock, at least for now. One analyst’s downgrade sent the SQ stock price down over 20%. Despite hitting lofty highs, the stock has further to fall. However, if the stock falls to the low $30s, Square has given investors many reasons to buy.

Square’s move into Bitcoin sales further bolsters their reputation and their revenue. Also, its small business payment, scheduling, and shopping products provide benefits not normally offered in one ecosystem. Given market conditions and business prospects, investors should buy SQ stock but only at the lower valuation.

As of this writing, Will Healy did not hold a position in any of the aforementioned stocks.