Is It Time to Get Bullish on Square Stock?

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Shares of financial-technology company Square (NYSE: SQ) have not only significantly underperformed the S&amp;P 500 this year, but they’re also down 40% from an all-time high achieved in the second half of 2018. Square investors have had a rough run recently, to say the least.” data-reactid=”11″>Shares of financial-technology company Square (NYSE: SQ) have not only significantly underperformed the S&P 500 this year, but they’re also down 40% from an all-time high achieved in the second half of 2018. Square investors have had a rough run recently, to say the least.

While the stock may have got ahead of itself in 2018, giving some merit to the pullback in the fast-growing company’s share price, this sell-off might be overdone — at least that’s what three analysts covering Square stock are arguing.

Here’s a look at three recent upbeat analyst notes on Square.

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Square for Restaurants platform. Image source: Square.

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="MoffettNathanson: The sale of caviar could lead to growth” data-reactid=”26″>MoffettNathanson: The sale of caviar could lead to growth

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Overall, Square demonstrated more of the same strong growth it has demonstrated for years when the company reported its second-quarter results on Aug. 1. Adjusted revenue rose 46% year over year to $563 million. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped 54% to $105 million.&nbsp;But the company’s&nbsp;outlook for third-quarter top- and bottom-line growth missed analysts’ forecasts, sparking a sharp decline in the stock price.” data-reactid=”27″>Overall, Square demonstrated more of the same strong growth it has demonstrated for years when the company reported its second-quarter results on Aug. 1. Adjusted revenue rose 46% year over year to $563 million. Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) jumped 54% to $105 million. But the company’s outlook for third-quarter top- and bottom-line growth missed analysts’ forecasts, sparking a sharp decline in the stock price.

MoffettNathanson analyst Lisa Ellis says this has presented a buying opportunity, particularly since Square’s recent decision to sell Caviar in a deal worth $410 million freed up some capital for reinvestment in growth opportunities.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content=""The divestiture will free up investment dollars for Square to pour into its core Seller and Consumer businesses," Ellis wrote in a note to clients (as reported by&nbsp;MarketWatch).” data-reactid=”29″>”The divestiture will free up investment dollars for Square to pour into its core Seller and Consumer businesses,” Ellis wrote in a note to clients (as reported by MarketWatch).

She upgraded her rating on the stock from “neutral” to “buy.”

<h2 class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="SunTrust: Strategic investments could drive growth” data-reactid=”31″>SunTrust: Strategic investments could drive growth

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="Meanwhile, SunTrust Robinson Humphrey analyst Andrew Jeffrey also upgraded Square stock on Tuesday, updating his rating on the stock from "hold" to "buy."” data-reactid=”32″>Meanwhile, SunTrust Robinson Humphrey analyst Andrew Jeffrey also upgraded Square stock on Tuesday, updating his rating on the stock from “hold” to “buy.”

“We expect Square to invest in [2020] to address complex retail and restaurants,” wrote Jeffrey. “These investments should bolster capabilities for large, inventory-intensive retailers where we believe it currently competes poorly.”

More investment on this front would make sense, as the company has seen outsize revenue growth from large sellers — particularly those with annualized gross payment volume (GPV) greater than $500,000. In Square’s second quarter of 2019, sellers with GPV of half a million dollars or more accounted for 26% of Square’s revenue, up from 22% in the year-ago quarter and 19% in the second quarter of 2017.

Deutsche Bank: Strong top-line growth should persist

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="While Square's revenue growth has decelerated recently, Deutsche Bank analyst Bryan Keane says its organic year-over-year revenue growth rate should stabilize in the forties or high thirties going into 2020.” data-reactid=”36″>While Square’s revenue growth has decelerated recently, Deutsche Bank analyst Bryan Keane says its organic year-over-year revenue growth rate should stabilize in the forties or high thirties going into 2020.

Like the other analysts, Keane believes the pullback in Square’s stock price is a buying opportunity. “We don’t believe there has been any change to the company’s robust fundamentals and long-term outlook,” the analyst said in a note to investors on Aug. 22.

<p class="canvas-atom canvas-text Mb(1.0em) Mb(0)–sm Mt(0.8em)–sm" type="text" content="But not all analysts are bullish on the stock. Atlantic Equities analyst Kunaal Malde initiated coverage of Square stock on Tuesday with an "underweight" rating and a $55 12-month price target — below Square's $61.13 price when the market closed on Tuesday. The analyst cited a deceleration in the company's core business and intense competition from PayPal‘s peer-to-peer payment app Venmo as some of the key reasons for his bearish outlook.” data-reactid=”38″>But not all analysts are bullish on the stock. Atlantic Equities analyst Kunaal Malde initiated coverage of Square stock on Tuesday with an “underweight” rating and a $55 12-month price target — below Square’s $61.13 price when the market closed on Tuesday. The analyst cited a deceleration in the company’s core business and intense competition from PayPal‘s peer-to-peer payment app Venmo as some of the key reasons for his bearish outlook.

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