Square Stock: Crypto Potential Could Drive SQ Stock Shares Higher

square stock
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Square Stock Could Be Next Big Crypto Play

Jack Dorsey may be running two major technology companies concurrently, but, contrary to Wall Street’s suggestion that he focus on only one company, he has so far exceeded expectations at both Square Inc (NYSE:SQ) and Twitter Inc (NYSE:TWTR).

While Twitter remains a work in progress, the same cannot be said for Square Inc, which is rapidly catching the interest of investors in the hot mobile payments segment.

The SQ stock price has been sizzling on the chart, trading at a record $55.54 on March 15, up 350% since I previously discussed my bullishness for the stock in November 2016.

Square stock is up a whopping 58% this year and 223% over the past year, and there is likely more to come, albeit SQ stock could pause and retrench before the next leg up.

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Chart courtesy of StockCharts.com

The catalyst driving up Square stock has been the company’s desire to expand its mobile payment platform to include innovative technologies, including the possibility of allowing Bitcoin transactions in the future, according to a report by Instinet, which is owned by Nomura Holdings Inc (ADR) (NYSE:NMR). (Source: “Square closes near all-time high after analyst compares stock to early days of Amazon,” CNBC, March 14, 2018.)

And in another interesting venture, Square Inc is investing in Lightning Labs, Inc., which is developing a technology that could enable the effective use of Bitcoin for transactions.

In my view, Square Inc and PayPal Holdings Inc (NASDAQ:PYPL) are currently the leading mobile payment platforms out there. But, while PayPal is much larger, with a market cap of around $100.0 billion, SQ stock, with a value near $22.0 billion, may have more potential and be more receptive to innovative next-generation payment technologies.

The Growth Metrics Support Valuation

By all standards, Square stock is not cheap, but its stellar growth estimates and potential dictates a higher multiple.

Revenues grew 30% in 2017, following growth of 35% in 2016. Looking ahead to 2018, revenues are expected to ramp up by 36.5% to $1.3 billion, followed by 28.7% to $1.7 billion—and by as high as 43.3% to $1.9 billion in 2019. (Source: “Square, Inc. (SQ),” Yahoo! Finance, last accessed March 15, 2018.)

The ramp-up in revenues is bullish. Moreover, Square Inc has managed to expand its gross margins in two consecutive years, which has resulted in profits.

Square Inc Gross Margins

2015 29%
2016 34%
2017 38%

The company is estimated to turn profits of $0.45 per diluted share in 2018 (versus $0.27 per diluted share in 2017) and run this to $0.76 per diluted share, and as high as $0.95 per diluted share in 2019.

Analyst Take

Square stock is not cheap, but Dorsey appears to be on the right path to making the company a powerhouse in mobile payments. At the high estimate, SQ stock trades at 57-times its forward earnings per share (EPS), which is not cheap, but, in my view, deserving.

The price/earnings to growth (PEG) ratio of 1.47 suggests a reasonable valuation, considering the strong expected five-year compound annual growth rate (CAGR) of 85%.

As far as a price objective, a PEG ratio of 2.0 would imply a target of $75.00 for SQ stock. The fact is, there are numerous technology stocks trading at a PEG of well over 2.0.