In today’s market, Square Inc (NYSE:SQ) is an anomaly: a technology firm that’s performing very well. On a year-to-date basis, Square stock is up nearly 42%, a resounding triumph amid a sea of disappointment. In contrast, competitors in the payment apps industry, such as Paypal Holdings Inc (NASDAQ:PYPL) and Apple Inc. (NASDAQ:AAPL), are decidedly muted.
Naturally, investors wonder if such momentum can last. I’m cautiously optimistic that it will. Unlike Apple, which has multiple and disparate businesses, SQ stock is a substantially more focused investment. And while PayPal is the dominant player in the online payment app arena, Square has the edge in providing a comprehensive solution for small businesses.
Of course, I don’t want to discount the pain in the broader markets, which has negatively impacted Square stock. For instance, the entire tech sector softened from mid-March due to several pessimistic catalysts, most notably the Tesla Inc (NASDAQ:TSLA) and Uber
driverless technology controversies. In Square’s case, shares are down nearly 15% since the March 20 close.
At the same time, investors pushed up SQ stock for a reason. In fact, every indicator existed to run away from the markets, even from solid names. That just didn’t happen for SQ, which tells me that the positives outweigh the negatives.
Importantly, it’s not speculative optimism after which Wall Street chases. Small business sentiment is one of the bright spots this year, with entrepreneurs expecting more revenues and growth opportunities. Also, they’re reporting less difficulty in obtaining financing.
Naturally, this rising trend is a big boost for Square stock. But I’m even more intrigued with the finer details.
Square Stock Deserves Its Winning Ways
As I mentioned previously, the biggest advantage to using Square is its comprehensive platform. For signing up, you get a free credit card reader, which makes in-person transactions a snap. Along with that, you receive inventory management programs, as well as other administrative applications. It’s easily the best choice if you run a traditional business.
It’s not much of a stretch to assume that older business owners prefer SQ. After all, these are folks that actually want to talk to their customers – not text them emojis. Square has the tools, comprehensiveness, and simplicity that most small entrepreneurs crave. We shouldn’t be surprised, then, how dominant Square stock is in the markets.
Also unsurprising is that in-person or traditional businesses are rapidly adopting mobile payment apps. According to an October 2017 survey, small business owners were more likely to integrate in-person mobile payments than they were to integrate online payment processing platforms.
This trend contradicts the common perception that companies are exclusively focusing on the online experience. Since most small business owners are older, Square has a much more viable market than analysts give them credit for. Again, chalk that up as a win for SQ stock.
Technicals Confirm the Fundamentals
Sometimes, we encounter situations where a fundamentally sound company experiences market distress. Perhaps investors haven’t quite digested the organization’s true potential, and share prices lag as a result. This is not at all the case with SQ stock.
Since the early summer of 2016, SQ has formed a consistently rising bullish trend channel. In addition, the 50 day moving average has supported the overall price action. I expect this trend to hold up, especially because the fundamentals are so strong.
With that said, my main caveat is the broader market weakness. It could continue to pressure even solid companies with great fundamentals, which is why I’m not completely gung-ho.
Ultimately, though, the longer-term picture is what you want to focus on. Consider initiating a small position in Square stock now, and start building up should prices decline. In a year or two from now, you’ll be glad you did.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.
