Although it’s been up and down so far this year, financial technology (fintech) company Square (NYSE:SQ) and SQ stock remains a solid long-term bet for investors.
SQ stock has risen 16% this year to about $253 a share. And 7% of that gain has come in the last month. For most of this year, it’s been a case of one step forward and two steps back for the stock as investors try to reconcile the company’s core digital payments business with its aspirations related to cryptocurrencies.
However, in the long term, Square continues to be a best of breed fintech company. Investors who are circling the company should keep in mind that despite trading sideways this year, the stock is up 97% over the past 12 months.
A $1 Trillion Company?
Square has been publicly traded since November 2015. In a little more than five years, the company has surpassed a $100 billion market capitalization and it continues on a strong growth trajectory, leading some analysts and media commentators to speculate that Square could join the $1 trillion market cap club by 2030.
While reaching that lofty height might sound like a tall order, it’s not that hard to imagine when you consider that SQ stock has gained 1,800% since its IPO less than six years ago.
Square also continues to post impressive earnings. From 2017 through 2020, Square grew its revenue from $3.3 billion to $9.5 billion, representing annualized growth of 42%. Rival PayPal (NASDAQ:PYPL ) grew its revenue at an annualized rate of 18% during the same period. In this year’s first quarter, Square’s earnings blew away analysts’ expectations. The company reported earnings per share of 41 cents, 156% higher than the 16 cents per share that analysts had called for.
Square’s first quarter revenue came in at $5.06 billion, 50% greater than the $3.36 billion that analysts had anticipated. The company’s revenue grew 44% from the first quarter of 2020. Such strong results have some analysts declaring that the sky’s the limit for the San Francisco-based company. The median price target on SQ stock is currently $281 a share. The high estimate on the stock is $380 per share.
Square’s founder and chief executive officer Jack Dorsey is a leading supporter of Bitcoin (CCC:BTC-USD) and cryptocurrencies in general. At a conference this spring, Dorsey said “Bitcoin changes absolutely everything… I don’t think there is anything more important in my lifetime to work on.”
Square has invested heavily in Bitcoin, owning $220 million worth of the digital coin. The company reported $3.5 billion in Bitcoin revenue for this year’s first quarter, up 11x year over year. However, Bitcoin is likely to be a drag on Square’s second quarter results as the cryptocurrency’s price has effectively been cut in half since mid-April.
Despite the drop in the price of Bitcoin and other cryptocurrencies, Dorsey remains bullish. The company recently announced that it is building a Bitcoin hardware wallet. Dorsey said the wallet is an effort to “make Bitcoin custody more mainstream.” (A hardware wallet stores a user’s private information in a secure device).
Dorsey also said that Square is looking into a feature that would allow users to automatically invest in Bitcoin. Customers can already buy and sell Bitcoin using Square’s popular “Cash App.”
Buy and Hold SQ Stock For the Long Term
Beyond cryptocurrencies, Square’s share price moved the most this year after media reports surfaced that the fintech company plans to offer traditional savings and checking bank accounts. SQ stock jumped nearly 5% on the news. Square is reportedly planning to offer consumers a 0.5% interest rate for its savings account.
The expansion into banking, combined with the ongoing success of Square’s Cash App, led one analyst at Mizuho Financial Group to declare that buying Square today is like investing in JPMorgan Chase (NYSE:JPM) at its founding in 1871.
Hyperbole aside, there are many good reasons to buy and hold SQ stock for the long term. The company is a market leader in the fintech space, is run by a visionary leader in Dorsey, continues to grow at a blistering pace and is innovating and expanding to retain its competitive edge.
While the company’s foray into Bitcoin might unnerve some investors, Square’s exposure to cryptocurrencies remains relatively small and is not enough to harm it financially. As long-term investments go, it’s hard to beat the potential gains offered by SQ stock.
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.