Contact-free commerce is coming into its own in the 2020s. Among the leaders in this space is Square (NYSE:SQ), and investors have enjoyed astounding gains in SQ stock over the past year and a half.
As we’ll see, the onset of the Covid-19 pandemic certainly didn’t hinder Square in the long term. Indeed, the share price has absolutely exploded to the upside since March 2020.
In recent months, however, SQ stock seems to be going nowhere. Consequently, it might be tempting for the shareholders to just take their profits and run.
However, selling one’s shares now might be a hasty move. There are catalysts worth watching now — including a potentially lucrative venture in Canada.
A Closer Look at SQ Stock
So, I’ll start off with a word of caution first. SQ stock isn’t necessarily a value play, at least according to an age-old valuation metric.
As it turns out, Square’s trailing 12-month price-to-earnings ratio is a whopping 208. That, by itself, might deter some value-focused investors.
But please, don’t run away just yet. There’s more to the story here.
In large part, that loft valuation is due to the epic rise of SQ stock since March of last year. We’re talking about an ascent from $32 at the bottom, to $289 at the top.
On the other hand, the buyers have apparently taken a breather in 2021. As of Sept. 14 — and after months of choppy, directionless movement — the Square share price has remained close to $250 for around a week.
It’s not unusual for stocks to make an upward move, then engage in a sideways consolidation period for a while, and finally take another leg up.
So, it’s entirely possible that SQ stock is testing the investors’ patience and loyalty. The only way to pass this test, really, is to hold one’s shares and let the market do its magic.
Justifying the Move
All of that being said, I can still hear the skeptics objecting to Square’s high P/E ratio.
My response is to remind folks that expensive stocks can get more expensive, as long as the company is consistently profitable.
In other words, when a business is making money, a powerful share-price move can be justified.
Such is the case, it seems, with Square. To bolster the bull thesis, we can cite the company’s second-quarter 2021 fiscal data.
Let’s start with the top-line data. Reportedly, Square posted quarterly net revenues of $4.68 billion, marking a 143% improvement over the prior-year quarter.
So far, so good. How about the bottom line, though?
No worries there at all. For 2021’s second quarter, Square recorded adjusted earnings of 66 cents per share.
That figure indicates a massive 266.7% year-over-year increase, and a pretty darned good 60.9% sequential improvement.
Particularly notable was the momentum throughout the Cash App ecosystem. This segment of Square’s business contributed $3.33 billion to the company’s quarterly net revenues, up 177% on a year-over-year basis.
Big Launch In Canada
In case you didn’t get the memo, Square’s market footprint is going global.
The company’s latest foray is into the Canadian digital payments market.
It’s a potentially lucrative region in which to conduct business, at least according to Square’s research.
A survey from Square found that “72% of Canadians are looking for socially-distanced, cashless ways to support local businesses post-pandemic.”
Naturally, this trend favors Square’s business model — and as we might expect, the company is preparing to capitalize on it.
Thus, the company is introducing Square Register into Canada. Rather than try to describe it myself, I’ll let Square do the talking:
“Square Register is an in-person, point-of-sale powerhouse that enables integrated, omnichannel commerce within minutes, straight out of the box, and works seamlessly with Square’s growing ecosystem of business tools…”
Square Register has existed in the U.S. since 2017, and it’s already starting to gain traction in Canada.
Among the early Canada-based adopters making the switch to Square Register are Calgary’s Village Ice Cream, Ontario’s Steel N Ink, Montreal’s Les Petits Ziboo and Toronto’s Kensington Brewing Company.
The Bottom Line on SQ Stock
You just never know where Square’s products and services might pop up next.
The company’s venture into Canada demonstrates Square’s responsiveness to client preferences, all over the world.
So just maybe, despite its impressive share-price ascent during the Covid-19 pandemic, SQ stock isn’t so expensive after all.
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.
David Moadel has provided compelling content — and crossed the occasional line — on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.