With Square Inc (NYSE: SQ) stock up 175 percent in the past year, it’s understandable for investors to be concerned about the stock’s ballooning valuation. However, Buckingham Research Group analyst Chris Brendler says Square simply has too many positive long-term trends for investors to get hung up on its steep share price.
Brendler says Square is a market leader in integrated payments and has differentiated its offerings with superior, simple, accessible and unique solutions. In the near term, all of the company’s key metrics indicate it could continue its trend of beating market expectations and raising guidance. The integrated payments business is still in its early stages, and Brendler says Square has made itself a clear market leader in the space.
Even though earnings expectations have risen along with Square’s share price in the past year, Brendler says Square still has room to exceed expectations on volume growth, new product revenue, margins and free cash flow. In addition, he compares Square’s potential for international expansion to that of Wall Street darling Netflix (NFLX).
“SQ’s payments opportunity is arguably better outside the U.S., where competition is both less intense and tech-centric,” Brendler says.
Finally, he says Square is also a serious buyout candidate given its huge growth numbers and relatively modest $16 billion market cap. Brendler says Paypal Holdings (PYPL) is the most likely buyer, but any company looking to establish a major presence in the payments business could be interested.
The only potential hang-up for Square buyers is the stock’s sky-high valuation, which Brendler acknowledges is concerning. After the stock’s huge gain over the past year, it currently trades at an elevated 24.5 times Buckingham’s estimated 2020 earnings before interest, taxes, depreciation and amortization estimate. Unfortunately, Brendler says investors waiting for a better entry point may never get the opportunity. The stock is already down roughly 25 percent from is November high, and Brendler doesn’t anticipate the pullback will go much deeper.
While the price may be high, Brendler says investors should consider Square’s incredible long-term potential and simply pay up for the stock.
“Although the current valuation is challenging, we are…
Click here to continue reading
Want to learn more about how to profit off the stock market? Or maybe you just want to be able to look sophisticated in front of your coworkers when they ask you what you are reading on your Kindle, and you’d prefer to tell them “Oh, I’m just reading a book about stock market analysis,” rather than the usual “Oh, I’m just looking at pics of my ex-girlfriend on Facebook.” For these reasons and more, check out my book, Beating Wall Street with Common Sense. I don’t have a degree in finance; I have a degree in neuroscience. You don’t have to predict what stocks will do if you can predict what traders will do and be one step ahead of them. I made a 400% return in the stock market over five years using only basic principles of psychology and common sense. Beating Wall Street with Common Sense is now available on Amazon, and tradingcommonsense.com is always available on your local internet!
