Square Inc: After Rising 736%, This Could Give SQ Stock Another Boost

Square Inc: After Rising 736%, This Could Give SQ Stock Another Boost
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More Upside Ahead for Square Stock?

It’s no secret that early investors of successful businesses can make some of the biggest profits. If you jump at an opportunity before other market participants establish a bullish sentiment towards the stock, you’ll likely make a serious buck.

Early investors of Square Inc (NYSE:SQ) stock are certainly laughing all the way to the bank. And I’m not talking about really early investors like Khosla Ventures or Sequoia Capital, although those two undoubtedly enjoyed big paydays by participating in the company’s early rounds of funding.

I’m talking about small retail investors that bought shares of the San Francisco, California-based mobile payment company after it went public.

To give you an idea of how big the payout could be, here’s a look at Square Inc’s stock chart since its initial public offering (IPO).

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Square Inc Stock Chart

Chart courtesy of StockCharts.com

Square Inc went public on November 19, 2015 with an IPO price of $9.00 per share. The stock had a choppy ride in the first few months of trading, but got on a steady uptrend since late 2016.

At the time of this writing, Square shares traded at roughly $75.29 apiece, representing a 736% increase from its IPO price.

Obviously, it’s not easy to buy a stock at its IPO price on the first day of trading. But here’s the thing: even if an investor got in on Square stock as late as October 2017—nearly two years after the company’s IPO—they would still have made a return of over 100% by now.

Of course, with astronomical gains already made, you might be wondering whether it’s too late to get on board the profit train.

Well, if Square pulls off this move, which the company has been planning for quite a while, it could spark another huge rally in SQ stock.

A New Catalyst for Square Stock?

In December, Square announced that the company was applying for a banking license with the Federal Deposit Insurance Group. (Source: “Square Revives Request to Start a Bank,” The Wall Street Journal, December 19, 2018.)

If the application is approved, Square would be able to open a wholly owned bank—to be called Square Financial Services Inc.—in the state of Utah. The bank would offer deposit accounts, loans, and prepaid cards to small businesses.

As I said, this is something that the company has been planning to do for a while. Square Inc first applied for a banking charter back in September 2017, but withdrew that application in early 2018, saying that the decision to withdraw and refile was, “a procedural step in the review process.” (Source: “Payments processor Square Inc. withdraws banking license application: statement,” Reuters, July 5, 2018.)

Right now, Square is mostly known as a mobile payments company. Its “Square Reader” allows consumers and businesses to accept card payments with their smartphones or tablets. If Square obtains a banking license, it could mark the beginning of a new chapter for the fast-growing company.

Banks lend out money at higher interest rates than they borrow at, pocketing the difference. This simple-but-profitable business model has been working well for centuries.

And since Square Inc has tons of businesses using its payment service, it already has access to a potential client base for lending and deposit services. It’s only natural to predict that, once Square moves into banking, the company would get a new source of recurring profits.

Analyst Take

While getting into the banking sector would be a potential catalyst for Square stock, the company already has a solid business in place.

In the third quarter of 2018, Square grew its adjusted revenue by 68% year-over-year to $431.0 million. More importantly, the company reported a net income of $20.0 million, marking a huge bottom-line improvement because, in the year-ago period, it had a net loss of $16.0 million. (Source: “Q3 2018 Shareholder Letter,” Square Inc, November 7, 2018.)

However you look at it, Square is firing on all cylinders. If the company gets the okay to move into banking, SQ stock could see even more upside.