Square Inc (NYSE:SQ) seems unstopple. For the year so far, the Square stock is up a sizzling 156%.

And this is not just about momentum traders. The fact is that Square stock is benefiting from several key factors, such as a secular trend towards online payments and the ubiquity of smartphones.

Oh, and it also helps that Square has been an innovation machine.

The company has leveraged its merchant business – based on tethering a smartphone to a card reader – into many other related categories.

Just some include gift cards, appointments, payroll, employee management, inventory, customer engagement, location management and lending. SQ is creating a powerful digital ecosystem for ecommerce.

Square Stock and Acquisitions

But Square is also being smart with acquisitions. One recent deal was for Weebly, which has a platform that allows you to easily create a business website.

This market is definitely red-hot, as seen with operators like Shopify Inc (NYSE:SHOP), Godaddy Inc (NYSE:GDDY) and Wix.Com Ltd (NASDAQ:WIX). The market opportunity is also massive.

Note that there are 30 million small businesses in the U.S. alone — and about 60% do not even have websites!

Although, perhaps the most attractive part of Square stock is the Square Cash app. With it, you can make debit-card payments … and even use bitcoin.

There is also no cost for the user to send or receive payments. But the good news for Square stock is that the company still makes money off of the transactions – that is, from the interchange fees of 2.75%, which is paid by the merchant.

All this is great, right? Definitely.

Yet I still think there should be some caution with Square stock. The main reason: competition.

Simply put, Square’s success is just too much to ignore and other players want to get a piece action. Note that older tech firms like Intuit Inc. (NASDAQ:INTU) are getting aggressive.

Hey, even traditional financial institutions, such as JPMorgan Chase & Co. (NYSE:JPM) and Bank of America Corp (NYSE:BAC), are making decent efforts. Of course, they also have the advantage of massive user bases.

But perhaps the biggest threat to SQ is PayPal Holdings Inc. (NASDAQ:PYPL). Back in mid-May, the company shelled out $2.2 billion for iZettle AB, which has a similar merchant platform to Square’s. True, iZettle’s main presence is in Europe.

Yet it should be no surprise that PYPL management wants to use this technology to take on Square in the US.

Next, PYPL is taking aim at Square Cash with a Venmo card. It is based on Mastercard Inc (NYSE:MA).

Now this is not to imply the PYPL will crush Square. But then again, PYPL does have massive scale and resources to put up a tough fight.

Bottom Line On Square Stock

Lately Wall Street analysts have been getting cautious on SQ stock. Some of this has been about the exuberance of bitcoin (which is still a minor piece of the business), as noted by BTIG analyst Mark Palmer.

And yes, the emerging competitive threats are another nagging problem. For example, Buckingham Research analyst Chris Brendler recently downgraded SQ stock from “buy” to “neutral” because of these concerns.

But perhaps the biggest issue for SQ stock is the valuation. It seems that much of the good new is baked in – and then some. Consider that the shares trading at a hefty 11 times revenues.

In other words, for now it’s probably best to be patient with SQ stock and wait for a more reasonable valuation.

Tom Taulli is the author of High-Profit IPO Strategies, All About Commodities and All About Short Selling. Follow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.