One of my favorite stocks this year continues to be Square (NYSE:SQ). When I first weighed in on it in October of 2019, I wrote about the bears sending shares lower. I said, “it appears much of the negativity has been priced into the stock, and that SQ stock will soon resume its unbelievable uptrend.” At the time, Square stock traded at just $56.39.
Then, in August of 2020, I wrote that Square could reach $200 before the end of the year. Now at over $230 a share — good for a return of 268% year-to-date (YTD) — I’m still just as bullish.
After all, Square remains one of the most disruptive stocks in the world, allowing anyone to turn their mobile phone into a cash register. With solid catalysts, I strongly believe that SQ will see $250, near term.
Here’s why.
1. Square Stock’s Cash App Is Riding the Digital Payments Trend
Thanks to the pandemic, there’s been an incredible decline in cash usage.
In turn, that has fueled a contactless and digital payment spree. PayPal (NASDAQ:PYPL) CEO Dan Schulman sees this as a sign that digital payments are just now shifting from “being a nice-to-have capability to a must-have essential service.” In addition, CNBC reports:
“Millennials are the ones leading the charge toward a cashless future. A report from Experian in 2019 revealed that 1-in-10 millennials use their digital wallet for every purchase. Pew Research also found that about 34% of adults under the age of 50 make no purchases in a typical week using cash.”
So, with the trends showing no signs of slowing, Square stock stands to gain. The company’s Cash App business will continue to thrive, allowing consumers to send, receive and deposit money without having to be face-to-face with others.
2. SQ Is Also Riding the Crypto Wave
In addition to the contactless payment trend, Square’s Cash App has also become a trusted way to buy and sell Bitcoin.
In fact, one hedge fund, Pantera Capital, says that Square clients make up 40% of those buying new Bitcoin supply entering the market every day.
The recent rallies in Bitcoin and other cryptocurrencies also help the case for SQ. How? The crypto wave illustrates the growing acceptance of both altcoins and digital transaction tools. So from that angle, if cryptocurrencies continue to gain momentum, they could significantly boost Square stock and the company’s revenue growth.
3. Analysts Still Love It
In late November, Mizuho analyst Dan Dolev raised his price target on SQ to $300 from $225. While some of Square’s features pit it up against PayPal’s Venmo, MarketWatch reports Dolev’s sentiment is that Cash App “seems to be making inroads in areas that are more typically Venmo strongholds.”
On top of that, BTIG analyst Mark Palmer also upgraded Square stock to a “Buy” with a price target of $220. Palmer noted that the company’s third-quarter report shut down “concerns about a pandemic-induced slowdown in its Seller division.”
Finally, MoffettNathanson analyst Lisa Ellis also “increased her earnings estimates for 2020 and 2021 sharply,” as reported by Barron’s contributor Daren Fonda. The analyst reaffirmed her $210 price target, too.
In short, given all these analyst developments, concerns over slowing growth no long apply to Square.
4. Earnings Growth Has Been Incredible
Analyst sentiment and future trends aside, my last reason to like Square stock is this: the company is simply firing on all cylinders.
This past quarter, SQ generated gross profits of $794 million. That’s up 59% year-over-year (YOY). Moreover, Square’s “Seller ecosystem” made gross profits of $409 million and its Cash App saw gross profits up 212% YOY to $385 million.
Better yet, in Q3 of 2020, the number of average daily Cash App customers nearly doubled in comparison to the previous year. Total net revenue was up 140% YOY to $3.03 billion and adjusted EBITDA was up 38% YOY to $181 million.
These are extremely strong numbers. Essentially, Square is crushing it.
Bottom Line
As digital payments continue to grow, Square stock will also continue to benefit thanks to the company’s Cash App processing hardware and software. Plus, Square is still one of the most disruptive stocks in the world.
With sizable future growth prospects, solid earnings growth, the cryptocurrency and cashless trends and plenty of bullish analysts, it’s tough to argue against further upside for this name. So, after saying it was a buy at $56.39 more than a year ago, I’m reiterating my stance. SQ is a buy at $230 — it could easily hit $250.
On the date of publication, Ian Cooper did not have (either directly or indirectly) any positions in the securities mentioned in this article.
Ian Cooper, a contributor to InvestorPlace.com, has been analyzing stocks and options for web-based advisories since 1999.
