Forget Apple's Credit Card, Buy Fintech Power Square (SQ) Stock on the Dip

Square SQ shares have soared over 33% this year to outpace comebacks from giants such as Facebook FB and Amazon AMZN. Despite the 2019 climb, Square stock rests 26% below its 52-week high, which gives the stock plenty of room to run. Plus, Square looks poised to grow as part of the larger fintech revolution that Apple AAPL and other FAANG firms hope to capitalize on.

Overview

Square has come a long way since CEO and current Twitter TWTR chief executive Jack Dorsey founded the firm in 2009 to help micro-businesses and entrepreneurs process credit card payments from their mobile devices. Today, the company has transformed into a well-rounded financial services firm, offering business loans, peer-to-peer payment options, debit cards, and more.

Square is coming off a better-than-expected fourth quarter fiscal 2018 that saw its gross payment volume, a widely tracked Wall Street metric, surge 28% to reach $23.0 billion. More specifically, the firm’s larger sellers—process $125,000 or more annualized—soared 39% and accounted for 51% of total GPV. Square’s larger seller success helps show that even bigger companies are looking for alternatives in the digital age. Meanwhile, the company’s quarterly subscription and services segment skyrocketed 144%, driven by the expansion of Instant Deposit, Cash Card, Caviar, and Square Capital.

SQ’s P2P payment platform, the Cash App, boasted more than 15 million monthly active customers at the end of December 2018, which doubled the year-ago quarter’s total and stands out against rivals like JP Morgan JPM. On top of that, Square’s new In-App Payments SDK allows app developers to utilize Square’s back-end payment infrastructure on their platforms. The firm’s back-end, in-app offering could become a significant business as some estimates suggest that mobile will account for almost half of all digital retail sales by 2020.

Meanwhile, Square’s original hardware business skyrocketed 51% last quarter, fueled by the new Square Terminal. Going forward, the firm plans to roll out more financial offerings in an effort to further challenge the traditional banking and credit card industries.

The biggest tech powers in the world, including Google GOOGL and Apple, have also tried to get in on the fintech action with digital set to dominate the future of finance. In fact, Apple announced on Monday a new credit card in partnership with Goldman Sachs GS—which is trying to open new revenue streams—and Mastercard MA as it tries to bolster its non-iPhone business.

 

 

Outlook

Clearly, investors can see that SQ stock has skyrocketed since going public in the fall of 2015. The firm has also crushed fintech power PayPal PYPL and the broader Computer Software-Services Market. Yet, as we mentioned at the top, shares of Square closed regular trading Monday at $74.55, down 26% from their 52-week high of $101.15 per share.

Looking ahead, Square’s first quarter fiscal 2019 revenue is projected to surge over 40% to reach $937.63 million. This would mark a slowdown from Q4’s 51% top-line expansion.

Meanwhile, SQ is expected to see its full-year 2019 revenue climb nearly 34% to $4.41 billion. Once again, this would come up short of 2018’s 49% expansion, which is not unusual as massive top-line growth often becomes harder to achieve. Plus, in a sign of continued strength, Square’s fiscal 2020 revenue is projected to come in roughly 30% above our 2019 estimate to touch $5.71 billion.

At the bottom end of the income statement, the San Francisco-based firm’s adjusted quarterly earnings are projected to surge 33.3% to hit $0.08 per share. On top of that, the company’s full-year EPS figure is projected to soar 57.5%. And, peeking a bit further ahead, Square’s adjusted full-year earnings are expected to climb 52% higher than our current year estimate.

Investors will also notice that SQ has seen its earnings estimate revision picture trend more heavily in the right direction recently, especially for Q2 and fiscal 2019.

 

 

Bottom Line

Square is currently a Zack Ranks #2 (Buy) based mostly on its recent earnings estimate revision activity. The company also sports “A” grades for both Growth and Momentum in our Style Scores system.

In the end, SQ stock offers investors a chance to try to capitalize on the larger fintech revolution. And now might be a solid time to think about buying SQ with shares of Square still well off their recent highs.

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