With Square (NYSE:SQ) stock you’re free to believe what both bears and bulls are saying these days. But if you’re watching the SQ stock price chart and are agreeable with the company’s underlying growth narrative, the argument for a longer-term investment can be made today.
Mobile payments innovator Square stock has its share of fans and foes. Bulls on Wall Street will point to the company’s growth prospects as a primary driver for shareholder performance. Most recently, SQ received just that sort of praise from Susquehanna Financial Group.
On Friday analyst James Friedman wrote a client note which laid out the case for SQ stock to rally. According to the firm, Square’s investments are set to deliver stronger payment growth following August’s earnings-driven fallout. Susquehanna went on to raise Square from “neutral” to “positive” and reaffirmed its 12-month price target of $77 a share.
Surprisingly, Friday also saw Instinet analyst Bill Carcache take a bearish swipe at Square’s future stock performance. Shares of SQ stock were given a “reduce” rating. Acknowledged innovation in the payments space, as well as the belief Square’s investments will bear fruit nevertheless took a backseat to valuation concerns.
Square’s Valuation
Were recent price tag worries associated with the company’s failure to turn a profit? Maybe. But I wouldn’t be too quick to think that’s the end all, be all. Investing in SQ stock is about looking ahead, not in the rear-view mirror.
SQ sports a forward price-to-earnings ratio of 58.2. It has a lower price-to-sales ratio than industry competition PayPal (NASDAQ:PYPL) or even credit card giant Visa (NYSE:V). And Square has much stronger sales growth — estimated at 44% over the next five years. I have to give the benefit of the doubt to the bulls.
Additionally, companies like Square are known to sandbag guidance after a weak quarter. Because of this, I think an upside surprise might be just around the corner.
SQ Stock Monthly Price Chart
Stocks are fluid and price patterns change. Some of my prior notes on the provided monthly chart of SQ stock could be viewed as support of this non-contestable point. As investors, the best we can do is take imperfect information and work with it as unbiased as possible. It’s no easy task.
Right now Square stock is poised to align its price action with the company’s superior growth potential. Following SQ’s August correction, shares managed to eventually find a bottom in September at the 50% retracement level tied to its lifetime cycle low of $8.42 to cycle high of $101.15.
The September price action in SQ stock is forming a monthly hammer candlestick and this time frame’s stochastics are meandering in oversold territory. It is very approachable now to buy Square’s growth narrative, even though shares are still highly contentious.
My suggestion is to buy SQ stock above $64.75. This will allow the monthly candlestick to receive a small bit of extra price confirmation above the September high of $63.98. From there, I’d look to take partial profits near $80 and where shares turned lower in August. Ultimately though, Square looks like the type of core growth investment which can be accumulated on weakness and allowed to run on the upside.
Investment accounts under Christopher Tyler’s management do not own positions in any securities mentioned in this article. The information offered is based upon Christopher Tyler’s observations and strictly intended for educational purposes only; the use of which is the responsibility of the individual. For additional options-based strategies, related musings or to ask a question, you can find and follow Chris on Twitter @Options_CAT and StockTwits.
