Square: More Fuel Left in the Tank Following Blowout Earnings, Says Top Analyst

The rise of digital payments coupled with investors’ unabating hunger for growth stocks has fueled incredible growth for Square (SQ) this year. While 2020’s extraordinary share gains (194% year-to-date) have called the fintech player’s super-hot valuation into question, Square has retorted convincingly by delivering consecutive outstanding quarterly results.

The latest were on display in Q3. Net revenue hit $3.03 billion, increasing by 140% year-over-year, and coming in well ahead of the $2.04 billion consensus estimate. Non-GAAP EPS of $0.34 beat the Street by $0.18, whilst gross profit climbed 59% year-over-year to $794.5 million. Seller ecosystem revenue was up 5% year-over-year to $965 million.

But once again, Square’s peer-to-peer offering Cash App was the star of the show. Amounting to 70% of overall revenue in Q3, Cash App generated $2.1 billion – a 574% year-over-year jump. The app’s $385 million in gross profit amounted to a year-over-year increase of 212%.

Looking ahead, though, due to the pandemic driven uncertainty, Square once again declined to provide any guidance. The company did say that as the impact of fiscal stimulus has faded, Cash App gross profit growth will slow down. However, it still expects revenue to grow by 160% year-over-year in October.

Needham analyst Mayank Tandon applauds the quarter’s “strong results.” The 5-star analyst countspositive trends driving growth in digital payments” as a reason why “aggressive growth investors” should continue to back Square.

“We remain positive on SQ given the impressive growth within Cash App and improving trends in the Seller ecosystem,” Tandon further said. “While the NT investments will weigh on profitability, we believe they will help SQ continue to gain share in both the consumer and business payments endmarkets, both of which provide a long growth runway for SQ.”

Accordingly, Tandon kept his Buy rating intact while the price target gets a kick upwards; The figure moves from $190 to $230 and suggests possible upside of 25%. (To watch Tandon’s track record, click here)

Following the blowout results, updated ratings are coming in thick and fast for Square. The stock currently holds a Moderate Buy consensus rating based on 18 Buys, 6 holds and 3 Sells. However, at $188.50, the average price target suggests shares will stay range-bound for now. (See SQ stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.