After a topsy turvy spring, it looks like leading fintech stock Square (NYSE:SQ) is finally getting its mojo back. This is welcome news for owners of SQ stock.
Following a 52-week high of $283.19 reached in February, SQ stock fell 30%, hitting a bottom of $197.13 on May 13.
The San Francisco-based company’s share price has since bounced back more than 20% and is now trading around $241.
Happily for stock holders, this rebound is fueling optimism that the stock can retest – and even surpass – its high from earlier this year.
With the economy forecast to surge in this year’s second half and consumer spending kicking into high gear, conditions look optimal for Square to thrive moving forward.
SQ Stock Fares Well in the Pandemic
Founded in 2009 by Jack Dorsey, who also created Twitter (NYSE:TWTR), Square performed admirably during the pandemic. Its original payments application grew in popularity among both consumers and business owners as they were forced to interact from a distance.
However, Square’s newer Cash App that enables consumers to do everything from banking to buying stocks and even cryptocurrencies, has really taken off over the past year.
In the first quarter of 2021, the company reported $33.1 billion in gross payment volume and $964 million in profits. Square’s revenue has increased 764% in the past five years.
Now, Square is evolving with the goal of becoming a full service financial institution. Square has started to offer loans to banks and deposit accounts (checking and savings) to consumers.
Looking out to the horizon, Square may also move into personal and automotive loans, as well as home mortgages.
The company has said that it sees itself as a disrupter of the financial services industry as traditional bank branches and automated teller machines (ATMs) become less important now that we are moving rapidly toward a cashless society.
A Boost for Business
Square’s foundation is built on small businesses that continue to use the company’s square-shaped credit and debit card readers that attach to smartphones.
The square-card reader enables merchants and vendors to accept credit and debit payments from virtually anywhere without having to rely on cash. The square-card reader is the most mobile of payment systems. And the resumption of concerts, festivals, sporting events, flea markets and crafts fairs this summer should give Square a decent boost.
Square makes money on each transaction using its square-card reader and its Cash App. Revenue from the company’s Cash App alone rose 139% year-over-year in this year’s first quarter. A total of $3.4 billion worth of transactions were conducted with the Cash App between January and March, a 227% increase from the same period in 2020.
In a news release, Square said, related to the Cash App, that “Growth was driven by an increase in the number of business accounts and in the number of transactions per business account.”
If there’s one reason for investors to be cautious about SQ stock, it’s because the company is making some risky bets on volatile cryptocurrencies.
Square is not only enabling consumers to buy and hold Bitcoin (CCC:BTC-USD) and other cryptocurrencies through its Cash App, but the company is also actively investing in Bitcoin and other digital assets. Square purchased $170 million of Bitcoin in February of this year after first purchasing the largest cryptocurrency last October.
Square’s investment in Bitcoin looked smart when the cryptocurrency was at an all-time high of just under $65,000 in April of this year. However, Bitcoin recently fell below $30,000 and wiped out all of its gains this year.
Yet despite ongoing volatility across the crypto market, Dorsey remains bullish on the future of digital coins. Speaking at a recent cryptocurrency conference, he said, “Bitcoin changes absolutely everything. I don’t think there is anything more important in my lifetime to work on.”
SQ shareholders hope the bet pays off.
SQ Stock Is a Smart Fintech Investment
Among financial technology (fintech) companies, Square is a leader. Only rival PayPal (NASDAQ:PYPL) comes close to matching Square in terms of its reach with businesses and consumers, as well as its innovation-led growth.
Payments are rapidly going digital and Square is at the forefront of the move to a cashless society. Businesses and consumers are adopting Square’s products at fast clip and seem to have an appetite for more.
While the company’s exposure to Bitcoin warrants attention, the amount of cryptocurrencies Square currently owns is not enough to significantly harm the company’s finances.
As the economy begins steaming ahead in the coming six months, Square will surely benefit. Analysts who cover the company expect big things from SQ stock. The median price target on the share price is $281. The high estimate on the stock is $380 a share.
Square is a smart fintech investment and a solid bet on the U.S. economy.
Disclosure: On the date of publication, Joel Baglole held a long position in SQ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.