SQ Stock: Square Inc Has a Secret Weapon

SQ StockGreat Prospects for Square Stock

The digital revolution is rapidly growing as technologies and bandwidth capabilities continue to accelerate. We see it in the mobile payment space with innovative companies like Square Inc (NYSE:SQ), which is driving sales to many businesses that would have been shut out only a few years ago.

My first contact with Square Inc was a few years ago when I was purchasing something at a market when I noticed that my credit card was being read into a square-shaped device hooked up to a smartphone. Within a minute, the transaction was approved and I was given a printed and e-mailed receipt.

I would later discover that the device was made by Square Inc. While I was initially impressed with the technology, I wasn’t that sold on the pre-initial public offering (IPO) SQ stock at the time.

Yet, the demand for mobile payments is rapidly becoming a main staple, and I now believe that a company like Square Inc could reap the benefits.

The risk is that a multitude of competitors are in the way of Square stock, such as the much bigger players PayPal Holdings Inc (NASDAQ:PYPL) and Visa Inc (NYSE:V).

SQ stock has a market valuation of about $4.3 billion, which is much smaller in scale than the $48.0 billion and $190.0 billion for PayPal and Visa, respectively.

Of course, Square Inc stock is run by co-founder Jack Dorsey, who also leads the charge at Twitter Inc (NASDAQ:TWTR). While the simultaneous running of Square Inc and Twitter is being questioned by all, there is increasing hope for Square Inc.

The company currently generates the majority of its revenues from transactions made via its point-of-sale (POS) technology, but Square Inc is much more.

In addition to helping businesses accept mobile payments, Square Inc also offers business analytics, such as data analysis and marketing.

My Bull Case for Square Stock

Another service that Square Inc provides, but which is really under the radar is its financing loans business, via its “Square Capital” unit. This segment has lent out over $1.0 billion in loans over the last two years to its vendors using its POS technology. This concept makes a whole lot of sense and has sell-side firms like Pacific Crest Securities bullish.

By adding to the business loan capability, Square Inc becomes a more complete player that can compete in some degree with the big boys.

While Square Inc is yet to turn a profit, the company could do so by 2018 if the positive trend of declining revenues holds.

But what has been impressive has been two straight years of higher revenues at Square Inc. Better yet, the growth is expected to continue at 3.90% and 24%, respectively for 2016 and 2017, according to the Wall Street consensus.

The bulls are surfacing for SQ stock, with 23 new upward revisions by analysts over the last 30 days and 17 increases for 2017. (Source: “Square, Inc. (SQ),” Yahoo! Finance, last accessed November 17, 2016.)

On the SQ stock chart, there was a bullish upside gap in August and a subsequent golden cross, with an approximate price target of $16.00, last traded in April 2016.

sqa

 

Chart courtesy of StockCharts.com

There is massive betting against Square Inc stock, as reflected by the short position of 19.2 million shares, or a staggering 69% of the float.

I’m not sure if I would be onside with the bears, as Jack Dorsey could really deliver a great business that could reward aggressive investors.


Hi, George Leong here. If you enjoyed this article, you can get more of my opinions and commentaries in our popular daily tech letter, Profit Confidential. Published daily, it’s FREE! Join us when you click here now.