Fintech giant Square (NYSE:SQ) stock recently plummeted as it postponed the company’s shareholder meeting on the acquisition of buy now, pay later platform Afterpay (OTCMKTS:AFTPY). On Dec. 6, SQ stock hit a 52-week low of $170.75 before beginning to rebound.
The all-time high of $289.23 seen in early August is now in the rear-view mirror. Since then, Square shares have lost around 27%. Overall, 2021 has been a roller-coaster year for investors in SQ stock.
Yet, Square has been expanding operations regardless of what its shares do. The most recent developments, such as the new partnership between Square and TikTok, its plans for Cash App taking over Afterpay, and rebranding itself to Block, reflects management’s commitment to stay on top of technological developments. Square is also putting resources to blockchain technology and metaverse transformations.
Fintech is still a rapidly growing industry, in part aided by increased digitalization efforts during the pandemic. Recent research suggests the global fintech market was valued at $7.3 trillion in 2020. And it’s projected to grow with a compound annual growth rate of nearly 27% until 2026.
With a market capitalization of about $83.5 billion, we can expect Square to continue to grow. However, given the recent decline, SQ stock might need some more time to stabilize in the short run. But investors with a three- to five-year horizon could consider investing around these levels.
How Recent Quarterly Results Came
Square is led by Twitter (NYSE:TWTR) co-founder Jack Dorsey, who is also one of the founders of the fintech group. Management issued third-quarter financial results on Nov. 4. Net revenue grew 27% year over year to $3.84 billion. Excluding the Bitcoin (CCC:BTC-USD) revenue, total net revenue was $2.03 billion, up 45% from a year ago.
Gross payment volume of $45.4 billion meant an increase of 43% compared to prior-year quarter. Net income came in at $100,000. It translated into adjusted earnings of 37 cents per diluted share, implying an increase of 3 cents from a year-ago period.
Cash and equivalents ended the quarter at $4.6 billion. On the other hand, the company’s long-term debt stood at over $4.7 billion.
On the Q3 earnings call Dorsey commented, “…it’s a balance between getting to parity in the markets that we’re in with all of our products but also looking at entirely new markets as well, France being the most.”
Looking ahead, management underlined its focus on further expansion and profitable growth in long-term. Despite the recent delay, the $29 billion acquisition of Afterpay is expected to close in early 2022. However, analysts noted that investors should keep an eye on increasing operational expenses.
Adding SQ Stock to Portfolios
Among 39 analysts polled, Square stock has a “buy” rating. Also, the consensus of 32 analysts for a 12-month median price target stands at $300, implying around 60% upside potential from current levels. The 12-month price estimate currently changes between $190 and $380.
SQ shares trade at 28.2x book value and 5.9x trailing sales. The consensus forward price-earnings ratio stands at 84.7. These metrics imply that the stock is still overvalued. By comparison, Fiserv (NASDAQ:FISV), PayPal (NASDAQ:PYPL) and Shopify (NYSE:SHOP) currently trade at 2.1x, 9.8x, and 15.6x book value, respectively.
Headlines regarding the omicron variant have put pressure on broader markets, including tech shares. Therefore, despite the recent decline in SQ stock, there could still be volatility in the short run. However, growth investors with long-term horizons and who do not worry about daily choppiness, could consider buying the shares around the current levels.
The Bottom Line on SQ Stock
Over the past years, Square has evolved from an innovative credit card payment service into a financial ecosystem for both businesses and individuals. For example, Cash App has a network of over 40 million monthly active users, up from 36 million at the end of 2020.
In late November, Dorsey stepped down as CEO of Twitter. Now, he is expected to focus solely on Square as the fintech name expands into blockchain, cryptos and metaverse through new technologies.
On Dec. 1, Square announced it would change its corporate name to Block. It’s also changing the name of its Bitcoin funding initiative Square Crypto to Spiral. These changes will be effective soon. Yet, the company will retain its stock ticker of SQ for now.
Meanwhile, Federal Reserve Chair Jerome Powell has been indicating that the Fed might taper its bond-buying program and could hike interest rates to fight inflation. Rising interest rates typically have a negative impact on overpriced growth stocks, like SQ stock. On the other hand, in the case of increased levels of inflation, cryptocurrencies and fintech firms, like Square could benefit from the rise of speculative tokens.
As we move into 2022, the volatile world of cryptos and the growing metaverse space appear to be main themes for Square. Those readers who can handle short-term choppiness could buy the declines in SQ stock.
On the date of publication, Tezcan Gecgil 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.
Tezcan Gecgil, Ph.D., has worked in investment management for over two decades in the U.S. and U.K. In addition to formal higher education in the field, she has also completed all three levels of the Chartered Market Technician (CMT) examination. Her passion is for options trading based on technical analysis of fundamentally strong companies. She especially enjoys setting up weekly covered calls for income generation.
