Square (NYSE:SQ), the cash payments platform that rose 200% last year, is off to a slow start in January. Square stock is roughly flat to start the New Year, failing thus far to build on its overperformance from the last year.
You could even make the argument that this fintech company, with a market capitalization approaching $100 billion, is even flying under the radar.
But rest assured – there are better days ahead for Square stock. Analyst sentiment backs that up.
Square Stock at Glance
Square is less than a month away from issuing its fourth-quarter and full-year earnings report. The consensus earnings per share forecast is for 24 cents, which would be a drop from the 80 cents per share the company recorded a year ago.
But Square has a solid history of topping analyst expectations. For the third quarter, Square easily beat what the Street forecast, with revenue of $3.03 billion coming in nearly $1 billion more than analysts predicted. EPS of 24 cents beat the expected EPS of 16 cents per share.
One of the biggest drivers of growth for Square stock is the company’s Cash App, a customer-to-customer platform for digitally sending and receiving money. It posted triple-digit growth in every quarter this year and it would be a shock if that didn’t continue in Q4.
In the third quarter, Cash app profit was up 212% from the previous year.
Sentiment Is Building for Square
My own Portfolio Grader gives Square stock a solid B rating and a “buy” recommendation. But I’m not alone in touting the strength of this company.
Harshita Rawat, an analyst at Bernstein, recently reinitiated coverage of Square stock and gave it an “outperform” rating. She set her price target at $266, which gives a 25% upside from current prices.
Rayna Kumar, an analyst at Evercore, is even more bullish. She raised her firm’s price target from $300 to $304, while maintaining her “outperform” rating in part due to promise in Square’s Cash App.
Kumar noted that monthly average users of the Cash App increased 66% from last year, to 38.9 million in the fourth quarter.
The Crypto Question
One thing to be watching when Square reports earnings next month is how much money it’s earning from cryptocurrency transactions. Bitcoin and other cryptos had a big fourth quarter and interest in digital currency has never been higher.
Square announced in October that it purchased 4,700 bitcoins for roughly $50 million, and in December it began to allow customers to get paid in bitcoin on every transaction in its Cash App.
“We believe that bitcoin has the potential to be a more ubiquitous currency in the future,” Chief Financial Officer Amrita Ahuja said. “As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”
In the third quarter, Square reported generated $32 million in gross profits from bitcoin. That number should increase in a big way in Q4 and into 2021.
Solid Fundaments and a Solid Business
One of the best things about Square stock it represents a company that meets many of society’s needs right now.
Face it: people don’t like handling money these days. Passing dollars and coins back and forth during a pandemic seems to not make a lot of sense.
Square suffered in 2020 when lockdowns closed many businesses and took a big bite out of the company’s point-of-sale processing system and its smartphone credit card readers.
But now that a vaccine is ever so slowly being rolled out in the U.S., we can expect events such as craft shows to start being scheduled. And when they are, smart vendors will be using Square’s plastic dongles to scan credit card payments from customers who won’t be inclined to carry cash in the first place.
Even with those challenges, Square managed to have a better-than-expected 2020 because of the strength of its Cash App. Once a majority of people are vaccinated from Covid-19 and society begins returning to a “new normal,” Square’s merchant/seller business will rebound as well.
The Bottom Line
There’s a lot to like about Square stock. Its Cash App is growing in popularity. Its growth with cryptocurrency opens doors to adding more customers who want to dip their toes into alternative currencies. And its business/merchant business should improve in 2021.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Louis Navellier had an unconventional start, as a grad student who accidentally built a market-beating stock system —with returns rivaling even Warren Buffett. In his latest feat, Louis discovered the “Master Key” to profiting from the biggest tech revolution of this (or any) generation.