Why Wall Street Is Finally Coming Around on Square Stock

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I’ve been recommending Square (NYSE:SQ) for this entire year. Admittedly, at first that call looked a bit shaky. The novel coronavirus pandemic sent stocks plunging — and Square stock wasn’t immune.

Why Wall Street Is Finally Coming Around on Square Stock

Source: IgorGolovniov / Shutterstock.com

The company’s exposure to small businesses suggested significant risk if the broader economy went into a tailspin. At the lows, Square stock incredibly traded near $30.

Of course, the market has rallied since then. Fears of a recession and record-high unemployment are moderating. Another record jobs report no doubt helps.

Square stock has been one of the biggest winners in the bounce since March. It has now gained over 250% from its lows. And with the parabolic gains of late, I can see why some investors might be looking to take money off the table.

I’m not one of those investors. To me, the story behind Square is just getting started. And the fact that Wall Street, which is often late to these kind of growth stories, is coming around is one more piece of evidence to support that conclusion.

Wall Street Gets Behind Square Stock

On the whole, analysts aren’t bullish on Square. In fact, they’re bearish. The average price target for the stock is just $80.

But that’s starting to change. Just in the last week, two analysts have upgraded Square stock and raised their price targets.

KeyBanc led on June 29. Analyst Josh Beck moved his target to $125, the highest on the Street. Two days later, Rosenblatt’s Kenneth Hill followed. He estimated that the stock could get to $121 over the next twelve months.

These are not going to be the only two upgrades. More are coming. Wall Street firms have their use, but they notoriously tend to exhibit herd behavior. Only the most stubborn analysts will be comfortable with an $80 or even $90 price target on a stock trading at $115.

This cycle has played out in recent years so many times with high-flying, high-moving stocks. We’ve seen it with Shopify (NYSE:SHOP). We’ve seen it with Tesla (NASDAQ:TSLA).

The market outpaces the Street. The Street catches up, and then the market prices in the new, higher targets. It’s a cycle that suggests that the gains in Square stock could, and probably should, continue.

An Investment, Not a Trade

But that’s a trading argument, not an investing one. What’s helpful, however, is that both upgrades highlight a growing understanding of the long-term bull case.

Rosenblatt, for instance, focused on Square’s Cash App. Even excluding bitcoin, the firm sees Cash App revenue more than tripling over the next five years.

Cash App is a huge driver for Square stock, as I wrote in May. It’s clearly taking share from rival Venmo of Paypal (NASDAQ:PYPL).

The coronavirus only accelerated Cash App adoption. That’s a big reason why Square stock has rallied. Investors first started focusing on “pandemic plays” like Zoom Video (NASDAQ:ZM), and then began to look for companies whose tailwinds were less obvious. Square is one of those companies.

KeyBanc, too, called out Cash App strength. But that firm also made the broader case. Digital finance overall will be “one of the purest beneficiaries of our digital acceleration thesis.”

The world is going to change faster than it would have otherwise because of the current pandemic. Companies like Square are going to benefit.

That’s why Square’s stock has rallied 85% so far this year despite pressures on small business customers. And that’s why the rally can continue.

Look Around

The natural inclination is to take profits in a stock that’s rallied like Square has. For those investors on the sideline, the hope is always to catch “the next dip.”

I wouldn’t begrudge any shareholder who sold some of her stake. Nor would I question an investor who was hoping for the “next dip.”

But I’d point to the history of this market in recent years, and in the last three months. Quality companies just don’t go on sale very often. The March dip, as I argued strenuously at the time, was an enormous opportunity. There’s no guarantee another such opportunity is coming any time soon.

That dip aside, winners generally have kept winning. Investors on the sidelines waiting for a better entry point generally have stayed on the sidelines — and missed out on upside.

That pattern might not repeat this time around. Square stock certainly isn’t cheap. But quality companies with a massive long-term opportunity aren’t going to be cheap very often. And as the rally in Square shows, when they are, it usually doesn’t last for long.

Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities. 

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