Shares of digital payments company Square (NYSE:SQ) have dipped 3% after the company reported humdrum quarterly results, presenting investors with a great buying opportunity for SQ stock.
SQ stock fell to $240 a share after it reported third quarter results, that underwhelmed Wall Street.
Following the latest dip, Square’s stock is up a modest 4% over the past six months and has underperformed the S&P 500 index, which is up 13% during the same period.
And, at its current price, the financial technology company run by Jack Dorsey (who also created Twitter (NYSE:TWTR), appears to be seriously undervalued. Among 30 professional analysts who cover Square, the median price target on the stock is $307.50, which represents a 28% gain from where it currently sits.
Decent Earnings
While Square’s latest financial results didn’t blow away analysts’ forecasts, they were by no means terrible. The San Francisco-based company’s sales in July to September period totaled $3.84 billion, up 27% from a year earlier but less than the average analyst estimate of $4.51 billion.
Gross profit, which includes fees taken from Square’s popular Cash App, came in at $1.13 billion, an increase of 43% from a year earlier. The main reason for the company’s miss on its third-quarter sales was a drop in revenue generated from cryptocurrency Bitcoin (CCC:BTC-USD).
Jack Dorsey is a big cryptocurrency bull and has mused about Square getting into actual Bitcoin mining. On Nov. 19, Square is scheduled to release a white paper on a new division it has created that will develop a decentralized Bitcoin exchange.
Already, Square enables users to transact in the world’s biggest cryptocurrency on its Cash App. In the third quarter, Bitcoin generated $1.82 billion in revenue for Square — though that was below the amount generated in the previous spring quarter, when Bitcoin was hovering at all-time highs.
Sales of the cryptocurrency generated just 3.7% of Square’s gross profit in the third quarter, the company said in its earnings release.
New Ventures
While Square is seemingly all in on Bitcoin, it is not the only focus of the company. Square is also undertaking several new ventures aimed at diversifying its business and growing its revenues.
In October, the company announced that it is expanding its Cash App offering to teenagers — a decision that provides the company with access to as many as 20 million youth across America. Cash App currently has more than 50 million monthly customers, according to Square.
In September, Square integrated its online payments into social media company TikTok, highlighting that company’s potential as a social commerce platform. And there continue to be rumors that Jack Dorsey may merge Square with Twitter.
Many analysts see such a merger as a no-brainer given that Dorsey owns both companies. And Twitter has recently started to experiment with Bitcoin through the new tipping features on its platform.
While it is true that Twitter would have a ways to go to become a profitable e-commerce platform, joining Square’s merchants with Twitters social network would create a formidable tech company.
Buy Square While It’s On Sale
Investors looking for a great technology stock that is on sale need look no further than Square. The company continues to be a leader in the digital payments space, is on the cutting edge of cryptocurrencies, and is led by a visionary chief executive who also created the world changing social media company Twitter.
That Square underperformed in the third quarter has more to do with the risks the company takes on products such as Bitcoin than mismanagement or poor fundamentals. With a focus on innovation and diversification, Square is sure to remain a leader in the fintech space for years to come.
And with its share price nearly 30% below where Wall Street thinks it should be, now is the time to take a position. SQ stock is a buy.
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.
