As the COVID-19 stimulus payments made by the U.S. government begin to wane, the same may occur when it comes to consumer spending. Payment processing software and hardware companies rely on high volumes of transactions and commerce, and Square (SQ) is no different. The fintech firm will release its quarterly print in a few weeks, and investors are on the fence about the outcome. (See Square’s website traffic on TipRanks)
One analyst on the bullish side of the fence is Trevor Williams of Jefferies Group, who wrote that Square’s valuation should benefit in the long run from Cash App’s sector dominance, as well as the cash flow generated from merchant services.
Williams rated the stock a Buy, and calculated a price target of $300. This target represents a possible 12-month upside of 23.59%.
The analyst admitted that Cash App’s intra-quarter data is fading, and that bears are expecting an earnings miss dragged down by the in-house mobile payment app. However, if it is to pull through, bulls anticipate a flood of investors who are sitting on the sidelines until the binary event’s result is clear.
He sees the current downside pressure on valuation as a buying opportunity, and for the stock to gain strength in the near-term. Moreover, Square has not released many new innovations and products so far this year, and Williams believes “a more elaborate strategic vision” will soon be announced. Possible initiatives to be laid out would include synergies with the recently acquired buy-now pay-later company, Afterpay.
With bears arguing that average revenue per user has been on the decline, and bulls looking to future innovations for upside, the right choice will be made clearer only after Square’s Q3 release. Although, by that time, it may be too late to jump in.
According to TipRanks’ website traffic tool, Squareup.com has seen a 24.33% increase in traffic, quarter-over-quarter. The vast majority of visits to the website for SQ are from the United States.
Disclosure: At the time of publication, Brock Ladenheim did not have a position in any of the securities mentioned in this article
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