Jack Dorsey-helmed Square (NYSE:SQ) is on the cusp of a revolution in technology and finance – or at least, that’s what loyal SQ stock holders are betting on.
With the company’s popular Cash App, it’s hard to deny Square’s influence on modern finance. Indeed, it could even be said that the Covid-19 pandemic accelerated the Cash App’s adoption.
Yet, some skeptics might balk at the idea of putting Square into a historical context. They may even claim that the company’s best days have already come and gone, and that SQ stock’s already topped out.
But for every staunch skeptic, there’s a die-hard bull out there – and one of them has a price target for Square that may startle you, or inspire you to take a long position.
A Closer Look at SQ Stock
Back in March 2020, SQ stock hit rock bottom at around $36. Now, you’re not likely to see anything close to that price.
Square’s rebound from the Covid-19 crisis was absolutely stunning. A steep run-up culminated in a 52-week high of $283.19 on Feb. 16., with the bears undoubtedly going into hibernation.
Since then, the price action has been choppy. Frustratingly, SQ stock wobbled around for several months, landing near $235 in mid-July.
Now, it’s a good time to analyze some relevant stats. The first one is an indicator of historical volatility.
Specifically, SQ stock’s five-year monthly beta is 2.4. This means that the stock has tended to move at least twice as fast as the S&P 500.
Therefore, it’s not recommended to load up on Square shares. Instead, try a moderately sized position.
In addition, SQ stock has a trailing 12-month price-earnings ratio of 330. I know, that’s higher than some value-focused investors would prefer.
If we heed the words of one financial expert, though, an investment in Square might be justifiable at practically any price point.
The Ultimate Challenger Bank
“This could make buying SQ analogous to buying J.P. Morgan in 1871.”
That’s a comparison issued by Mizuho analyst Dan Dolev, which has the financial media buzzing.
I’ll admit, it’s a controversial declaration to make. Yet, it might actually hold up under scrutiny.
Dolev, on the other hand, is asking us to consider Square the modern equivalent of JPMorgan in the 1800s. Is there an argument to be made here?
Perhaps there is. Just as JPMorgan was a disruptor and influencer in 1871, today’s Cash App is poised to change banking as we know it:
We view Cash App as the ultimate challenger bank. Our detailed build of potential products shows a clear path from Cash App’s current $40-50 average revenue per user (ARPU) to $150-200 over the coming years by adding products that range from tax services, to insurance, to home equity lending.
The point is well taken. Square’s Cash App is designed to be “sticky,” meaning that it keeps the users on the app longer.
It accomplishes this by providing a one-stop shop for multiple personal financial needs – just as Dolev succinctly pointed out.
In light of this, Dolev assigned a price target of $380 to SQ stock.
That’s just as jaw-dropping as the JPMorgan comparison. The aforementioned 300+ P/E ratio, I’ll concede, makes it difficult to envision another moon shot this year.
I won’t go through the mathematical gymnastics that got Dolev to $380.
What I will do is note his reference to the Cash App’s 30 million to 40 million active users. And according to Dolev, Cash App “currently taps less than 10% of its potential user base.”
The point is, there’s a vast addressable market and plenty of room for growth.
And ultimately, valuation concerns might not matter as much as the expansion opportunities, which are considerable.
The Bottom Line
No one knows for certain whether SQ stock will reach any particular price target.
Nevertheless, Dolev’s argument is compelling.
Just be prepared for share-price volatility if you choose to take a position. And know that you could be witnessing a historic moment in the timeline of banking.
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.