Square (NYSE:SQ) stock has been a multi-year juggernaut. However, it hasn’t fared all that well over the past 12 months. SQ stock is actually down 27% in the past year. That badly lags the S&P 500, which is up 3% in the same time.
While Square stock is up 13% year-to-date, it also lags the S&P 500’s gain of almost 19%. That’s a bit frustrating for shareholders, although those that have been holding SQ stock for a few years surely don’t have much to complain about. The stock still boast three-year gains of more than 425%.
Still, it leaves many wondering what’s next for this stock.
Square Stock to $100?
On September 3rd, analysts at SunTrust Robinson Humphrey upgraded Square stock to buy from hold and assigned an $80 price target. At the time, it represented about 30% upside. The call came on the same day that analysts at Atlantic Equities hit SQ stock with a sell-equivalent rating and $55 price target, implying about 8% downside.
Just given those two perspectives — shares at ~$60 with price targets for $55 and $80 — it seems like a reasonable risk/reward. But then on September 6th came a strong call. KeyBanc analyst Josh Beck rated Square stock with an overweight rating. More notably though, he assigned a $100 price target to SQ stock, implying more than 60% upside from current levels near $63.
Beck argues that, “Square’s Cash App is in a transition period as instant deposit mixes down and Cash Card adoption begins to scale.” Beck adds that, “he does not foresee any substantial regulatory obstacle and believe Cash App revenue could scale to $2B in the next three years and be worth $50 a share.”
Beck’s $100 price target is just shy of the stock’s all-time high up at $101.15. Can it get there?
Trading SQ Stock
SQ stock continues to bob along its 100-week moving average and the $60 level. $60 has been a significant level over the past two years, but has been of even more importance over the past few months. Should it fail as support, it also means the 200-week moving average failed as support.
This would be a notable development, and while $55 could buoy the name, even more downside could be possible. Specifically, $50 stands out rather notably. In 2017 it marked the high and almost a year later, it marked a significant low.
If it gets there again, it will no doubt draw in buyers who are looking for another strong, multi-month bounce. Investors may also notice short-term downtrend resistance (blue line) currently squeezing SQ stock lower.
So what now?
To get some upside momentum, SQ stock need to push over downtrend resistance. Climbing to $65 should do the trick, and could trigger a move up to $70. There it will find the 50-week moving average, as well as the 50-day and 200-day moving averages. Over that and SQ stock can start working on its climb to $78+.
Below $60 and I will be waiting to see where Square stock finds support. If it gets down to $50, it will be a worthwhile long from a risk/reward perspective.
Bottom Line on Square
So what’s the deal here with Square? We’re talking about a high-growth company that’s not seeing its stock price act in kind. Estimates still call for 43% revenue growth this year and another 34% growth in 2020. That goes alongside estimates for 64% earnings growth in 2019 and 44% growth next year.
At current prices, SQ stock trades at roughly 11.5 times this year’s revenue figure. For some perspective, PayPal (NASDAQ:PYPL) trades at ~7.3 times this year’s revenue estimates. However, expectations call for growth of “just” 15% this year and an acceleration to 18% in 2020. On the earnings front, estimates call for 30% growth in 2019, but just 12% growth next year.
In other words, Square stock is growing into its once super-lofty valuation. Not that it’s “cheap” necessarily, but compared to its valuation when it was at $100 a year ago, it’s much more palatable at today’s levels.
Will it get back to $100? Probably at some point. But let’s go one step at a time and use the technicals to help us time an entry. Watch for a break out over $65 or break down below $60.