U.S. Markets close in 3 hrs 44 mins

Even If Q2 Numbers Are Solid, Square Stock Looks Tapped Out

Tom Taulli

Since early June, Square (NYSE:SQ) stock has been in the bull mode. Square stock shot from $60 to $82. But hey, so has the rest of the market. Just some of the catalysts include the expectation of lower interest rates and a truce with the U.S.-China trade war.

Even If Q2 Numbers Are Solid, Square Stock Looks Tapped Out

Source: Shutterstock

And yes, some Wall Street analysts are warming up to Square stock. Consider Raymond James’ John Davis, who raised his rating on the shares from underperform to market perform. The main reason for this is he believes that Square’s debit card is likely to see increased momentum, adding as much as $100 million to the top-line next year.

No doubt, this would be a big deal.

InvestorPlace - Stock Market News, Stock Advice & Trading Tips

But of course, much of the focus for SQ stock will be on the near-term. In fact, we’ll get the second-quarter results on Aug. 1.

So what is on tap?  Well, in terms of revenues, the consensus forecast is calling for $557 million, up about 45% on a year-over-year basis. As for the bottom line, the estimate is 16 cents a share, compared to 13 cents during the same period last year.  All in all, there remains quite a bit of optimism on Wall Street.

The Square Stock Price and Other News

During the quarter, there has been much activity, especially with partnerships. Here’s a look at some of the notable events:

  • Square teamed up with the Ogden Raptors – a minor league baseball team that’s part of the Los Angeles Dodgers farm system – to provide payment services. The deal involves both online sources, such as with Apple (NASDAQ:AAPL) Pay and offline ones.
  • Called Square for Restaurants, this is a set of order management integrations for Postmates, DoorDash and Chowly. All these services are not part of the core POS system, which means eliminating the use of various other tablets and manual entry of orders.
  • Square has entered a deal to be the payments and POS provider for the Indianapolis 500. The event includes more than 300,000 customers and about 500 concession stands. It’s actually the largest sports venue in the world.
  • A resident of southern California has sued Square because he alleges the company’s invoice system mistakenly sent his personal medical history to a friend. His attorneys are looking to put together a class-action suit. Interestingly enough, the Wall Street Journal recently wrote a piece on how Square’s system has misfired on various occasions.
  • Now when it comes to SQ stock, one of the most important growth drivers is its Cash App. According to Instinet analysts Dan Dolev and Conan Leon, the app has 56.1 million users, which is more than PayPal’s (NASDAQ:PYPL) fast-growing Venmo. They currently have a $100 price target on SQ stock, which was recently increased from $90.

Bottom Line on Square Stock

Square CEO Jack Dorsey has certainly done a great job with the company. What started as a simple app has quickly transformed into a strong platform with a robust ecosystem. It’s also amazing that he has been able to do this while still the CEO of Twitter (NYSE:TWTR).

Yet there are definitely issues with SQ stock. Even though the company deserves a premium valuation, it is still quite steep, with the forward price-to-earnings multiple of 73X.

Sell-side analysts are generally cautious as well, with three sell ratings and 17 holds. And the average price target assumes zero upside from current levels.

For the most part, Square stock is pricing in much of the good news. So this could make the upcoming earnings report a bit dicey since the growth rate has already been trending down during the past few quarters.

Tom Taulli is the author of the upcoming book, Artificial Intelligence Basics: A Non-Technical IntroductionFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

More From InvestorPlace

The post Even If Q2 Numbers Are Solid, Square Stock Looks Tapped Out appeared first on InvestorPlace.