Square (NYSE:SQ) looks set to ride the economic reopening to new heights in 2021. Square stock, which competes head-to-head with online financial services and mobile payments juggernaut PayPal (NASDAQ:PYPL), had a spectacular run last year (2020), rising 662% from its March low to a 52-week high of $246.49.
Investors who got in early on SQ stock have been richly rewarded. And with the share price dipping 8% in recent weeks, is now the time for new investors to grab Square stock before the next leg up? There are many reasons to be bullish on Square and its prospects.
The Covid-19 pandemic accelerated the move to a cashless society, and Square was well-positioned to take advantage of the transition. The San Francisco, California-based company’s “Cash App” has proven to be popular with consumers and business merchants.
In the third quarter of 2020, revenue from the Cash App alone jumped 174% from the same period of 2019, while the number of daily active users of the app doubled. And, while people and businesses are likely to spend more money as the economy reopens, it is unlikely that they are going to return to using cold hard cash to pay for things. Digital and online payments are too convenient. The gains for Square’s Cash App are likely to continue moving forward.
The other side of Square’s business is its “Seller” segment that is geared towards small and mid-sized businesses. While the Seller side was hard hit by the pandemic, it still managed to eke out a 5% annual gain in the third quarter of last year. As small and medium-sized businesses recover post-pandemic, so too will Square’s Seller segment.
A Closer Look at Square Stock
Digital payments are fast replacing cash transactions, and the market is growing. ResearchandMarkets.com forecasts that digital payment growth will average 23.8% annually between 2020 and 2025. Square is well-positioned to capitalize on this financial revolution.
The company is working to diversify its offerings, providing customers with website development tools and e-commerce solutions to help customers improve efficiency.
To be sure, Square faces stiff competition from PayPal and other fintech companies and online payment providers. Square, PayPal and others are racing to improve their so-called “digital wallets” and other products in an effort to attract new customers and grow market share.
PayPal’s Venmo service directly competes with Square’s Cash App. The two companies, and others, are now adding Bitcoin and other cryptocurrencies to their offerings – a move that has caused some volatility to Square’s stock price.
Square was ahead of PayPal in allowing its customers to buy and sell Bitcoin and also allowed customers to deposit government checks on its Cash App during the pandemic, which consumers seem to appreciate.
Square’s focus on quickly adjusting its business to give users what they want has definitely helped the company expand and send its share price higher. However, it is important to note that Square’s Cash App currently has 30 million users, fewer than half the 65 million users of PayPal’s Venmo.
Buy SQ Stock on the Dip
Some analysts feel that Square stock has run its course and is due for a correction. Among, 39 analysts offering 12-month price forecasts for SQ stock, the median price target is $215.00, suggesting a 6% decline from its current level.
The stock is down a percent or two since the beginning of the year, but off nearly $30 from its 52-week high. Investors should see the dip as a buying opportunity and grab stock before it breaks out again.
The market for digital payments and Square’s prospects as the global economy reopens are too big to ignore. This is a stock that is likely to continue rewarding shareholders for many years to come. Some people predict that Square could be the next Amazon (NASDAQ:AMZN). Time will tell.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article.
