While Square (NYSE:SQ) has ushered in a revolution of cashless payments, investors aren’t giving it the credit it deserves. Sure, SQ stock’s 2020 performance is nothing short of eye-opening, attracting a near-25% gain year-to-date. But shares still sit more than 20% below their highs from October 2018.
I expect the rally to continue once more investors recognize its opportunity. When that happens, Square will return to $100-plus for good.
Square’s opportunity in payments simply is too large for SQ to keep lagging other stocks in its sector. With new markets only adding to the company’s potential, Square should have not just years, but decades, of growth ahead.
Even though SQ stock isn’t cheap, that kind of growth simply isn’t priced in.
The Opportunity in Payments
Square’s simple dongle revolutionized payments by turning any smartphone into a credit card swipe. The company, of course, has come a long way since then.
Square has expanded into ever-improved point of sale systems that improve the experience for both the customer and the retailer. Its software offerings go well beyond payments to payroll, accounting and appointment scheduling.
Everything a small business might need, Square now offers. And the company doesn’t just serve small businesses anymore. Sellers with over $500,000 in annual revenue now drive over one-quarter of the company’s total payment volume.
Again, the world is going to become cashless. I personally use cash maybe once a month, if that — and I know I’m not alone. Square is a big part of the disruption in how American consumers pay for goods and services — and will benefit from that disruption going forward.
More and more small businesses will drive their payments through Square’s point-of-sale (POS) systems. Growth in online sales, too, will add to payment volume — and Square revenue. And the company has barely cracked the international market: overseas revenue was barely 5% of the company’s total in the first nine months of 2019.
To top it off, Square Cash is seeing increasing adoption. That product seems to be outperforming PayPal’s (NASDAQ:PYPL) Venmo. Square still isn’t getting much revenue from Square Cash — but with billions of dollars in transfers annually, it will.
Additional Growth Drivers
Of course, Square has two key growth drivers beyond payments and Square Cash. The company has been forward-thinking in cryptocurrency, becoming one of the first payment companies to process bitcoin transactions. That’s now a big business for Square: bitcoin revenue nearly tripled in the first three quarters of 2019, and totaled nearly $340 million.
That makes SQ stock an intriguing play on Bitcoin. And as I’ve written on this site, I believe the price of Bitcoin will soar, potentially to as high as $100,000. The coming “halvening” should be a huge upside catalyst for the price. Square, more so than any publicly traded payments company, should profit.
Square stock offers exposure to another significant trend: cannabidiol, more commonly referred to as CBD. The company launched its CBD offering last year, providing an all-in-one solution for sellers targeting that potentially enormous market.
Admittedly, CBD sales have been somewhat disappointing of late, largely due to unclear guidance from the U.S. Food and Drug Administration. But CBD will be a large and fast-growing market. Square should be at the forefront of that growth.
Why SQ Stock Should Catch Up
Square simply has multiple opportunities to drive growth for years to come. Yet, again, that’s done little for SQ stock. It’s lagged for nearly 18 months now — while other payment stocks have soared.
Both Visa (NYSE:V) and Mastercard (NYSE:MA) trade near all-time highs. Each stock has gained more than 40% over the past twelve months. PYPL stock is tracking new highs. Small business play Shopify (NYSE:SHOP) has been perhaps the market’s best stock in recent years.
Even with its YTD run, however, SQ stock is well below its past highs. Admittedly, the stock doesn’t look cheap. But a stock with this kind of opportunity simply shouldn’t be cheap. Meanwhile, upfront expenses to market to new customers and develop new offerings for existing customers are pressuring near-term earnings.
Once investors better understand the opportunity Square has, and look to the long-term earnings potential, SQ stock should rally. Considering the optimism toward the sector, there’s no reason why SQ, too, can’t reach all-time highs. That suggests another 25% upside from here — and a stock price in the triple digits for good.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.