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Square (SQ) Stock Has 20% Upside Potential, Says Top Analyst

support@smarteranalyst.com (Ben Mahaney)

Square (SQ) continues to show itself as a force to be reckoned with, and a stock to buy into. The company saw revenue surge by 51% year-over-year, with EPS growing 75%, from $0.08 per share to $0.14. Square continues to see growing demand for its services, including Square Cash — its peer-to-peer money transfer service — which was downloaded more than rival PayPal’s Venmo in 2018, as its user base doubled.

Indeed, RBC's top Daniel Perlin remains bullish on SQ stock after meeting with the company's IR team. Perlin maintains an Outperform rating on the stock, with an $88 price target, which implies nearly 20% upside for the stock.

As always, we like to give credit where credit is due. According to TipRanks, Perlin has a yearly average return of 25.6% and an 84% success rate. Prelin has an average gain of 106.6% when rating SQ and is ranked #48 out of 5,265 analysts.

Perlin is extremely excited about the Cash App. Though the analyst says it is “still early in its lifecycle,” he believes Cash “offers consumers multiple ways to utilize the product, thus increasing user engagement in SQ’s ecosystem, while also driving increases in customer lifetime value.” For example, Perlin says “the pathway for consumers to evolve from instant deposit to debit card users is a natural extension and ports the cost burden from consumers to merchants, which is more consistent with traditional payment economics.”

Unlike PayPal which has struggled to quickly monetize Venmo, Square has a clear revenue model for Cash. According to Perlin, this includes “instant deposit, whereby SQ charges consumer 1.5% to instantly transfer funds into the consumers bank account...2) Cash Card (prepaid Visa branded debit card) which enables consumers to utilize Cash App funds via a debit card everywhere Visa is accepted and monetized through interchanged charged to the merchant,” as well as Bitcoin utilization and credit card loading.

It isn’t only the Cash App that is exciting Perlin, but Square’s growing ecosystem in general. The analyst says Square’s expansion of its card-based ecosystem will drive a larger total addressable market will expand. On the card, the analyst says, “Square Card is a Mastercard branded business debit card (which provides network ubiquity at the POS), which is free to sellers, and generates interchange fees for Square (~2%+/-).” The company “notes that ~40% of Square Card beta sellers did not previously have a business debit card,” and is helping grow its own business by providing “Square Card [with] an instant 2.75% discount when used at another Square seller.”

Though Square is performing better than investors’ expectations, Wall Street isn’t sold on the stock. TipRanks analysis of 20 analyst ratings shows a consensus Moderate Buy. Of the 20 analysts, ten rate Buy, eight say Hold and two are Selling. The average price target among these analysts stand at $80, suggesting the stock is trading at 8% discount. (See SQ's price targets and analyst ratings on TipRanks)

 

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