Buy Square (SQ) : Stock Recommendations

Buy Now (March 2021)
Square (SQ)

Company overview
Many people recognize the company Square with a small credit card reader attached to a mobile phone. Square’s mission is to allow businesses to accept any form of payment a customer wants to use, and thanks to its array of user-friendly card readers, it’s become one of the top payment processing players in less than a decade. Square’s long term vision is much further than that. It wants to enable every small business to thrive. This company is led by founder and CEO Jack Dorsey, who is also the CEO of other innovative company Twitter.

Stock fundamentals
Square’s forward PE ratio is 190 and market cap is $110B.  Square’s stock valuation is quite rich. Its stock price has come down a lot this past week. It is a high growth company and these companies are valued higher than typical companies with slower growth. Square also has added bitcoin asset in its balance sheet and allows its customers to transact crypto assets through its popular mobile application CashApp.

Long term potential
Square is a disrupting company. Starting with a portable credit card reader, it has just announced the opening of its first physical bank. So, we can see this company being one of the largest banks in future. Though short term fundamentals are also looking good, stock can be more volatile (go up and down) in the short term. However, long term potential for Square looks very promising. 

Why buy now?
Square has been delivering robust results every quarter for the past two years and analysts predict that it will continue to deliver consistently in future. Most of these companies have stock priced for much long term growth. Stock price, though a little pricey, is not very expensive when considering where it will be after five years. Also, price has come down 20% from its recent high. Square’s business model has proved during the COVID crisis that it has potential to grow during adverse economic conditions as well. If you do not already have this in your list, we strongly recommend to add this now. 

In 5-10 years, Square has a potential to return your investment at least 2-3 times.  

Risks and when to sell?
Fintech is a very competitive field and it is getting crowded all the time. There are so many other players like Paypal, Affirm and other banks like JPMC and Bank of America also are trying to transform to become more modern FinTech organizations. Though we do not expect to happen in the next 2-3 years, we should continue to watch the growth of Square. If growth stalls or decelerates, it may start losing its market share and we as investors will have to assess the risk of owning the stock at that time.

Leave a Reply