If you looked at Square (NYSE:SQ) in terms of year-to-date growth, you’d find that SQ stock is worth just over 4% more than it was at the end of 2018. Not great, but at least it’s going in the right direction. However, that YTD number is misleading.
SQ spent most of 2019 trading far above its current $58.51 and passed the $80 level multiple times. At this time last year, Square stock hit $99. When Q2 earnings spooked investors, SQ went off a cliff in August, losing 20% in just two days and it has been mostly downhill since. However, SQ stock has now eked out two straight days of gains.
Has it finally bottomed out, making SQ an attractive target for long-term investors? Or is it possible that Square stock could fall further before a real recovery kicks in?
August Bloodbath for Square Stock
August was not a good month for investors in Square stock.
The month started off on a high note, with SQ closing at $80.98 on Aug. 1 — after peaking at $82.28 in mid-July. It had experienced impressive growth of nearly 36% since June, staging a recovery after disappointing guidance in the company’s May Q1 earnings report hit Square stock.
When Square reported its Q2 earnings after the bell on Aug. 1, the aftermath was ugly. The company reported adjusted EPS of 21 cents, which was far better than the EPS of 17 cents that analysts had been expecting. Adjusted revenue of $489 million also topped estimates. However, the net loss of $7 million was wider than analysts were hoping to see and the company issued weaker than expected guidance for Q3. Square also announced it was unloading its Caviar food delivery business. SQ stock got hammered, closing down 14% the next day, and losing a total of 20% over the course of just two trading days.
Then it continued to lose ground, as investors stewed and other factors entered into the equation, like concern over the escalating trade war with China. The threat of rising tariffs could impact consumer spending, hitting Square’s payment processing business. Shopify (NYSE:SHOP) had also launched payment processing hardware for small retailers earlier in the year, taking on SQ directly in that space.
Despite a few spikes, the story for Square stock since August has been a slump, with SQ down nearly 28% since then — even after the gains from the past two days.
Buy Square Stock Now or Wait?
The question of whether to pull the trigger on an investment in Square now boils down to how tolerant you are to the possibility of your investment being underwater for a short time.
As InvestorPlace’s Luke Longo points out, Square’s growth fundamentals are highly favorable. Analysts have mixed thoughts on the stock and its prospects, but many seem to think it is currently worth consideration. Among those polled by The Wall Street Journal, 16 of 38 have SQ stock rated as a “buy” with an average 12-month price target of $76.73 which would offer significant upside. However, three of those analysts are recommending clients “sell” SQ, and one bear has a 12-month price target of just $30 for the stock.
Square stock hasn’t traded at the $30 level in nearly two years, but it was as low at $50.72 last December. It seems unlikely that SQ is going to languish at current levels, or drop much further if it turns out that the gain over the past few days was just another blip. And if the recent gains turn out to be the start of a recovery, now is definitely the time to get in on SQ stock. As a long term investment, at $56.76 SQ stock is looking pretty attractive, even if it does end up losing a few more dollars in value before a real recovery kicks in.
As of this writing, Brad Moon did not hold a position in any of the aforementioned securities.
