Online payment processing company Square Inc (NYSE:SQ) has been on fire this year. It more than doubled between the summer and earlier this month and looked well positioned to compete in a high-growth NexGen sector.
However, things took a turn for the worse on the morning of Nov. 27, when an analyst at research firm BTIG said that SQ’s rally was “overdone.”
The shares fell 16% in a single day and erased almost an entire month’s worth of gains.
Let me give you a little basis behind the market’s reaction to the analyst’s story. A lot of SQ’s recent strength has been attributed to the fact that the company is testing the use of bitcoin in its Square Cash app, and the BTIG analysts basically threw water on that announcement. He said that the company’s future success and its high stock valuation were based on its ties to bitcoin.
Well, I don’t believe that’s true at all. I will say that the stock was due for a pullback — any would be after such a strong move to the upside — but now what we’re seeing is yet another case of an analyst trying to make a name for himself with a ridiculous report that ties in one of the hottest trends in investing.
Square Is the Future of Payment Processing
Square’s bitcoin announcement is important, and it could be huge for the company’s future as it shows that it is open to utilizing new types of currencies. But that’s not the only reason I like SQ here.
The company is so much more than a simple payment processing technology. Small businesses rely on Square not only for its core product, but also as a way to schedule employee shifts, book reservations and more. In the end, SQ is a NexGen play on the future of how business will take place.
Therefore, the recent weakness in the share price isn’t the be-all and end-all. Instead, I view it as a spectacular buying opportunity.
As you can see above, SQ has a lot of support around $35, and on Wednesday the stock came close to testing that level. I like the opportunity here, but I will say that investors who are interested in buying the dip need to be aware that the shares will be volatile in the coming weeks. Buying on a down day is the best strategy.
Matthew McCall is the founder and president of Penn Financial Group, an investment advisory firm, as well as the editor of FUTR Stocks and the ETF Bulletin. Matt just launched two new investment advisories focused around the “next” generation investing theme. His trademark three-prong investing approach targets the mega-trends old Wall Street is missing out on. Click here for more information on the “NexGen” Experience.