Digital payment company Square (NYSE:SQ) has undoubtedly been a big winner in 2020. Even despite the onset of the novel coronavirus, or perhaps because of it, Square stock holders have watched their investments double, triple or even more.
Gains of that magnitude might bother some value-focused investors. Some folks might be tempted to take profits if they already own Square stock, or avoid the stock if they’re not already a shareholder.
Yet, that might be a mistake. The momentum in Square stock could persist into 2021, setting the shareholders up for another monster year. Caution is understandable, but would be a shame to miss out on the potential returns.
What could fuel another leg up in Square stock in the coming year? A certain crypto connection might give us some clues about Square’s vision of a rapidly evolving and improving payment platform.
A Closer Look at Square Stock
Interestingly, Square stock wasn’t always a fast mover. In actuality, the stock price chopped sideways during much of 2018 and all of 2019.
But then, there’s an old saying in the markets: the longer the base, the higher in space. In other words, sometimes a stock needs to go sideways for a while in order to get ready for a big move to the upside.
Suffice it to say that the move in Square stock was astounding. Due to the coronavirus crisis, the share price bottomed out in 2020 at $32.33. After that, the stock embarked on a stunning rally that lasted for the remainder of the year.
On the morning of Dec. 24, Square stock was trading at around $228. The vertical multi-month run-up has been breathtaking. However, value-focused investors might point out that the stock’s trailing 12-month price-to-earnings ratio is a whopping 348.7.
Therefore, investors would need a strong justification to buy and/or hold Square stock. A peek into the world of cryptocurrency might give them exactly what they’re looking for.
Courting Crypto Users
The Square platform is known for its Cash App, which is a peer-to-peer payments app but also has other functionalities. Nowadays, the Cash App is able to handle a wide variety of financial transactions.
Back in 2018, Square started to allow the users to trade Bitcoin (BTC) via the Cash App. This might have seemed like a revolutionary move at the time. In hindsight, however, we can see that it was a smart thing to do.
The acceptance and adoption of cryptocurrency has grown over the past few years. We’ve even witnessed the development of central bank digital currencies, or CBDC’s. So, there’s no doubt that crypto is here to stay.
Among payments processors, Square was an early mover into the cryptocurrency space. Other, more traditional financial firms are now scrambling to play catch-up. Plus, a recent update to the Cash App puts Square even further ahead of the competition.
A Boost for Cash App Users
So, let’s back up a little bit. With the Cash App, there’s a feature called Boosts. As Square explains, “Boosts let you save money instantly when you use your Cash Card at coffee shops, restaurants, and other merchants. To get started, all you need is a Cash Card.”
And, in a recent tweet: “New right now: earn bitcoin instantly when you use your Cash Card — only with Boost.”
Thus, Square is now allowing Cash App clients to use their Cash Cards to earn bitcoin with the purchases they make. This functionality can easily be activated via the Cash Card tab on the application.
It’s a savvy way to get generations of crypto users engaged with the Cash App. Again, Square is ahead of the curve here. It’s easy to envision more traditional fintech firms wishing that they had done this earlier.
The Bottom Line
An argument could certainly be made that Square stock is richly valued. Yet, the high price tag of this stock might be justifiable.
As Square continues to bring cryptocurrency users into the fold, other financial firms will struggle to catch up. That’s bad news for old-school bankers, but great news for holders of Square stock.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.