Up 42% so far in 2019, Square (NYSE:SQ) stock is up more than twice as much as the SPDR S&P 500 ETF (NYSEARCA:SPY). SQ stock’s 14.6% one-year gain is also about double the S&P 500’s 7.2% performance.
Given Square’s meteoric rise over the past few years, one could consider its ~14% gain a relatively quiet consolidation period. In fact, the stock is setting up rather attractively. If Square stock weren’t set to report earnings later this week on August 1st, it would be on most traders’ radar by now.
Because of the earnings report though, many will have to wait to see how the stock trades after the report is released. The flip side is of course, after the report is released, SQ stock could very well post a huge move — either breaking out in big fashion or taking a noteworthy tumble.
Let’s look at the charts first.
Trading SQ Stock
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SQ stock has been on a very strong trajectory since its June lows. The stock has found itself in a solid uptrend channel (blue lines) and is making a series of higher lows. While it’s hard to see because of channel support, the stock also reclaimed the 20-day moving average and is finding it as support as it pushes higher.
Square stock also did a good job of bursting through prior downtrend resistance (purple line) in mid June. This was a troubling trend for SQ stock for most of 2019.
However, the stock continues to butt its head up against the $82.50 to $83 level, (just as we suspected). This area has been significant over the past year, acting as support in September and resistance since Q4 2018. Can it push through now?
If it can, SQ stock could run to channel resistance, and possibly overshoot it. That would take it to the $88 to $90 area. On the downside, I want to see if the 20-day can continue to buoy the name. It’s relatively close, so if it can’t, let’s see if the 50% retracement near $75.50 can support SQ stock. Below and there’s a confluence of moving average support near $70.
PayPal (NASDAQ:PYPL) hasn’t had a great reaction to earnings so far. Let’s see if SQ can buck that trend.
Square Earnings Preview
Analysts currently expect Square to earn 16 cents per share for its fiscal second-quarter results. Those estimates have been steady over the past few weeks, but are down ~16% from 19 cents per share 90 days ago. That’s not really too surprising, given that expectations have largely come down across the board on Wall Street.
After three straight earnings misses ending in mid-2016, Square has beat earnings estimates for 11 straight quarters. Should it report in-line results this time, it will represent 23% year-over-year growth. While that’s a good result for most companies, it lacks compared to the company’s overall growth this year.
Consensus expectations call for 69% earnings growth next quarter, along with 61% overall growth for fiscal 2019. This translates to EPS of 16 cents in Q2 and EPS of 76 cents for 2019. In this regard, guidance will be key.
On the revenue front, analysts expect sales of ~$557 million this quarter, up 44.5% year-over-year. For the year, estimates call for revenue $2.28 billion, representing a similar growth rate of 43.5%. Worth pointing out is that SQ stock has beat revenue estimates for at least 14 straight quarters.
Bottom Line on Square Stock
The company sports trailing free cash flow of $204 million. While that’s still quite small for a company with a $34.5 billion market cap, the growth has been intense. For instance, the company’s trailing free cash flow is up 188% over the past year. If this can continue to trend higher, along with sales and earnings, investors may very well continue to support SQ stock.
If Square can continue to hold off its competitors and if the economy remains solid, then its underlying business should continue to do well. It’s worth pointing out that the recent Q2 GDP report, as well as various earnings results — such as those from JPMorgan (NYSE:JPM) and Visa (NYSE:V) — have highlighted the strength of the consumer.
That should bode well for SQ stock, although we’ll find out soon enough.
Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long V.
