Don’t look now but Square (NYSE:SQ) is closing in on an all-time high. Considering SQ stock traded as low as $32.33 during the mid-March correction, the 280% recovery from its March lows is something to behold.
If you were one of the brave souls to buy in the low $30s, I would commend you for your nerves of steel. You’ve been amply rewarded for your conviction bet.
The question is whether those late to the Square party still have an opportunity to benefit from one of the great fintechs operating today.
Is it too late to buy Square stock? I don’t think so. Here’s why.
Cowen Analyst Right About SQ Stock
Back in mid-March, amid the bloodbath, Cowen analyst George Mihalos upgraded Square to “outperform” from “market perform,” stating, “[Right now is] the most compelling entry point in the stock in over three years,” Mihalos said July 17.
Mihalos believed that things would get worse before they got better, arguing that a slowdown in U.S. discretionary spending due to the novel coronavirus would hurt Square’s revenue by 8% to 12% and its adjusted EBITDA by 40% to 60%.
However, despite the near-term headwinds, the analyst thought Square’s revenue growth in 2021 and 2022 would be approximately 25% while also generating higher margins and more money to the bottom line.
For these reasons, despite cutting his 12-month target price by $12 to $70, he felt there was still plenty of upside.
Well, in hindsight, we know there was 280% upside.
It’s Come a Long Way
In April, I suggested that investors interested in buying Square, consider waiting until it fell into the $50s. It was in the low $60s at the time.
“While I get Davis’ argument, I remain a Square booster. Over the next 2-3 months, I could see SQ stock falling below $50 for a stretch, providing interested investors with a better entry point. If you’re holding for the long-term (2-3 years), anywhere in the $50s should work out just fine,” I wrote on April 20.
Talk about cutting too fine a line. Over the next three months, Square stock more than doubled in price. Market timing cuts both ways. If you’re holding for two to three years, the difference in unrealized gains by buying at $59 rather than $61 will be minuscule.
Sometimes, we media pundits get a little too cute. This was probably one of those times.
On May 12, I recommended that buyers of Square stock in mid-March consider taking profits off the table. At the time, the stock had more than doubled from its mid-March lows. Since then, it’s gained an additional 64%.
Like a Kentucky Derby-winning thoroughbred, sometimes you just have to let it run.
However, when I see that the very same analyst who was bang-on about Square being undervalued, downgraded its stock July 9 to market perform from outperform because of its massive move since mid-March — Mihalos did raise target price by $40 to $119 — I wonder if the man is about to strike oil a second time.
Mihalos believes that Square’s Seller business will require several years of recovery due to Covid-19, which has severely affected small- and medium-sized companies, the company’s bread and butter. As a result, he believes PayPal (NASDAQ:PYPL) and other payments companies make more sense at the moment.
It’s Not Too Late to Buy
If you buy today at $129, where it’s trading as I write this, and you hold for three to five years, I don’t think there’s any question you’ll get a reasonable return on your investment.
On the other hand, it probably doesn’t hurt to wait for Square to report its second-quarter 2020 results on August 5, to get a better understanding of what Covid-19’s meant to both its Sellers business as well as the entire company before jumping into a long-term financial commitment.
As I said in May, long term, SQ stock is a strong buy. Nothing’s happened to change my mind.
As Warren Buffett says, “Price is what you pay; Value is what you get.”
With Square, you get a lot of value.
Will Ashworth has written about investments full-time since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and several others in both the U.S. and Canada. He particularly enjoys creating model portfolios that stand the test of time. He lives in Halifax, Nova Scotia. At the time of this writing Will Ashworth did not hold a position in any of the aforementioned securities.