It’s been a stellar summer for payment processing company Square Inc. (NYSE:SQ). The company has released good news after good news, which has sent SQ stock 10% higher over the course of just 1 month.

The firm’s post earnings lift, coupled with an impressive year, means the share price has gotten pretty expensive. Right now Square trades at 165 times its forecasted earnings — miles above the rest of the industry. However, based on how the company has performed this far, it looks like that price tag might have been earned.

A Different Kind of Processor

I’ll admit, I was skeptical about Square stock to begin with — although fintech is a great place to operate from a growth standpoint, payment processing is a crowded industry. Merchants have a lot of choice when it comes to their payment processing options and companies like PayPal (NASDAQ:PYPL), that have a huge network of both merchants and shoppers already signed up, appear to have a much wider moat.

However, Square has been able to keep its payment processing options simple while still building an impressive competitive moat by creating an ecosystem that merchants become invested in. SQ is essentially becoming the Apple (NASDAQ:AAPL) of the payment processing space, with a host of offerings for subscribers that “just work” and require very little onboarding.

Not only do subscribers get access to SQ payment processing features, but the company also offers added benefits like inventory management and a microloan platform. This is beneficial from an investor standpoint because it offers new revenue lines, but more so because it ties customers in deeper to the Square ecosystem and makes them less likely to jump ship to another payment processor.

Restaurants

A big reason SQ stock looks so promising for the future is management’s ability to forecast upcoming trends and tweak its service to offer small- and medium-sized businesses access to solutions that will meet their needs. For example, during its second quarter earnings report, management talked up Square for Restaurants, a new industry-specific point-of-sale subscription that will help restaurants manage their operations more efficiently. What sets Square for Restaurants apart is Caviar, a meal delivery platform that also allows customers to order in advance. 

That’s something no other payment processor can offer at the moment, making SQ a top choice for restaurant owners. 

Peer-to-Peer Payments

When it comes to the future of payment processors, most agree that peer-to-peer transactions are the next frontier. That’s why PayPal has been diligently working to build out Venmo. Yet, despite the fact that Square was late to the party, it looks like the firm is going to take the top spot in the peer-to-peer payments space. Square’s Cash app surpassed Venmo in number of downloads for the first time ever in July. Cash has 33.5 million downloads while Venmo has just 32.9 million. 

That’s a big deal for SQ stock because it proves the firm has the potential to become top dog in a space that most agree will be key over the next decade. Some analysts are even predicting that the Cash app could propel Square to surpass $100 million in sales by 2020.

What makes peer-to-peer payments so promising is the fact that more and more people are doing things online, so being able to quickly and easily send money to another individual, without any cash exchanging hands, is becoming essential. From social media to paying for a round of drinks using something like Apple Pay has made it necessary for people to electronically send funds to each other.

The Bottom Line on SQ Stock

There’s no denying that SQ stock is expensive and it can be risky to jump on board with a stock that is commanding such a high price tag. Any slightly negative news or missed expectations will bring Square markedly lower.

But, right now, the company looks to be on track to deliver impressive growth over the next decade. Management has proven that it has its finger on the pulse of what merchants need and that should help carry the stock further into the future. 

As of this writing, Laura Hoy was long AAPL.