The flood of speculative retail investments was a disaster for a lot of people, including those who follow Reddit’s r/WallStreetBets and for the Robinhood trading platform. But not so for Square (NYSE:SQ). In fact, Square stock seems to be one of the winners out of the whole debacle.
For those of you who don’t follow so-called “meme stocks,” investors on the subreddit last month identified GameStop (NYSE:GME), AMC Entertainment (NYSE:AMC) and a handful of other wounded companies as overexposed by short sellers.
The rationale was that individual investors could buy massive quantities of GME stock and others at depressed prices. The ensuing short squeeze would theoretically drive the stock price up as shorts scrambled to cover their bets.
At one point, GME stock was up 1,625% from legions of Reddit-inspired investors who got in on the action.
Of course, it couldn’t be sustained for the long run. GameStop and other meme stocks tumbled, leaving many of those Reddit investors holding the bag.
What does this have to do with Square, you may ask?
The Square Connection
Well, many of those Redditors were using the Robinhood platform for their trades. In fact, Robinhood received so much traffic that the company suffered a crippling cash crunch. It had to tap into new credit lines, raise more money and raise margin requirements on some stocks.
And, to the outrage of Reddit-inspired investors, Robinhood temporarily limited trades on GME and AMC to close-only positions, meaning traders couldn’t buy more GME stock.
The backlash against Robinhood was fierce, and traders started looking for an alternative.
Square and its Cash App are one of the top choices as former Robinhood customers switch their accounts, it appears.
Mizuho analyst Dan Dolev,
in a research note, says he questioned 80 traders who are changing platforms because of Robinhood’s restrictions. He says nearly 40% of respondents said they are switching to Square’s Cash App.
While the survey is hardly scientific, Dolev obviously is giving it some credibility. He says of the people who are transferring to the Cash App, nearly one-third are net new users and nearly 75% of them expressed some interest in other Square products, such as Bitcoin (CCC:BTC-USD) investments or Cash Card.
Based in part of the findings, Dolev maintained his buy rating on Square stock and set his price target at $300. That’s a projected upside of more than 16%.
Square Stock and Cash App
As I mentioned recently, Cash App has been a huge driver for Square stock recently. In the third quarter the number of Cash App customers using the platform for daily transactions nearly doubled, compared to a year ago.
Gross profits from the Cash App platform grew by 212% on a year-over-year basis, reaching $385 million. The platform reported reaching 30 million monthly active users in the third quarter and is projected to reach 38 million by the time Square reports its Q4 and full-year earnings.
In fact, Cash App was the sixth-most downloaded app in the U.S. in 2020, according to Apptopia.
There are a couple major drivers in Cash App’s popularity. People are increasingly favoring digital payment systems instead of cash transactions, thanks in part to fears of spreading Covid-19.
Also, Cash App allows people to buy and sell Bitcoin, which is hitting record highs on a regular basis. Bitcoin transactions accounted for 74.1% of Cash App revenues in the third quarter.
The Bottom Line on Square Stock
Square stock rose by a whopping 245% in 2020. While it’s unrealistic to think the company can duplicate such a feat, the increasing popularity of its Cash App lends credence to the belief that Square will continue its growth trend.
Square stock has a “B” rating and a buy recommendation in my Portfolio Grader.
On the date of publication, Louis Navellier did not hold (either directly or indirectly) any positions in the securities mentioned in this article.
On the date of publication, the InvestorPlace Research Staff member primarily responsible for this article had a long position in BTC. The staff member did not hold (either directly or indirectly) any other 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. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.
