As far as digital payments stocks go, Square (SQ) is often one of the first stocks to come to mind for investors. That’s for good reason.
A leader in the race for global point of sale and online payments’ market share, Square has built an impressive ecosystem intended to bring financial tools to every nook and cranny of the economy. The tools Square provides give innovative solutions for everyday businesses and consumers, in an otherwise boring financial services segment.
Of note, the company’s Cash App has further democratized the traditional investing space. For many investors, Square’s approach to generating growth is both creative and attractive. The company’s “Cash App Fridays” marketing campaign has been extremely successful. The company points out that this movement has been a big hit, in both attracting new investors to the investing world, and in lowering the company’s marketing costs. Indeed, acquiring new customers at a lower cost is the goal of every company. Accordingly, it’s no surprise investors have become increasingly bullish on Square.
Square’s stock price performance has been absolutely stellar over the past year. In fact, this stock has produced returns for investors of roughly 150% since mid-2020. That’s certainly not bad. (See Square stock analysis on TipRanks)
Indeed, there’s reason to remain bullish on this stock right now. Here are a couple key reasons why many investors appear ready to back up the truck on Square right now.
Square’s Growth Profile Leaves Little Room for Interpretation
Square is hands-down one of the best growth stocks crossing over between the technology and finance sectors. Many investors are already aware of this.
Looking more closely at the company’s financials, some rather impressive growth on the company’s income statement is apparent. Total revenue increased by a whopping 266% year-over-year, mainly due to massive gains with the company’s “Bitcoin revenue” line item. Excluding this line on the income statement, Square still posted revenue growth of 44% year-over-year.
This growth rate is impressive, given Square’s existing size.
The company attributed the majority of this growth to the success of the company’s aforementioned Cash App business. For Cash App specifically, revenue growth skyrocketed 139% higher year-over year.
Indeed, as peer-to-peer platforms such as Square begin to exert their dominance over the market, a number of analysts are now pointing to a winner-takes-all type of scenario playing out in this space. If that’s the case, Square certainly looks like the front-runner to become the sector leader for the long-term.
Additionally, Square is growing profitably. The company’s gross profit of $964 million this past quarter was up an impressive 79% year-over-year. Cash app generated more than half of this growth profit, showing a year-over-year gross profit growth rate of 171%.
Revenue and profits generated from sellers also increased substantially over this past quarter. It appears Square is doing a better job of monetizing both sides of the transaction. For long-term investors, this sort of growth is simply hard to ignore right now.
Indeed, growth at any price (or worse, at the expense of margins) is an acceptable idea in the short-term, but generally a terrible idea over the long-term. Square has found a way to grow rapidly, and do so profitably, while building an impressive moat-like ecosystem that could set this company up for long-term dominance.
Cathie Wood Believes Square Is a Foundational Portfolio Holding
It’s important to start with the axiom that buying a stock because someone else has bought it, or because someone else is very bullish on said name, is a poor investing strategy.
However, when it comes to high-profile growth investing gurus like Cathie Wood, investors pay attention to what she’s buying and selling. Recently, Ms. Wood has thrown her weight behind Square in a big way. In fact, Square currently takes the number two spot among all her holdings.
That’s quite the endorsement.
Wood continues to heavily invest in digital wallet stocks such as Square. She is propelled by the notion that banking as we know it has been due for a change for a long time. In a recent interview with Ms. Woods, she touted the various reasons she remains highly bullish on Square.
So far, she hasn’t been wrong about Square. There are a number of stocks with which investors can differ in their opinions from Cathie Wood. However, Square appears to have both the growth profile and long-term cash flow growth potential of a winner.
What Analysts Are Saying About SQ Stock
According to TipRanks’ analyst rating consensus, SQ stock comes in as a Moderate Buy. Out of 19 analyst ratings, there are 17 Buy recommendations, 5 Hold recommendations, and 2 Sell Recommendations.
As for price targets, the SQ average analyst price target is $286.90. Analyst price targets range from a low of $160.00 per share to a high of $380.00 per share.
Bottom Line
As far as futuristic growth stocks go, Square is about as good as it gets today. It’s a company transforming a massive market every day, and the company’s growth rate indicates just how successful Square has been in accomplishing this goal.
Until we see some sort of deceleration of growth, expectations of continued stock price appreciation for Square are hard to ignore. This is a company providing investors with strong long-term growth catalysts and a growing moat. For long-term investors, it’s hard to ask for more than that.
Disclosure: Chris MacDonald held no position in any of the stocks mentioned in this article at the time of publication.
Disclaimer: The information contained herein is for informational purposes only. Nothing in this article should be taken as a solicitation to purchase or sell securities.
