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Square Stock: Headed to $110?

Daniel Sparks, The Motley Fool

Shares of financial-technology company Square (NYSE: SQ) are rising on Thursday following a bullish note from Nomura Instinet analyst Dan Dolev. The company's recently launched business debit card "increases SQ's disruption of services that are traditionally offered by banks, as sales are stored in the Square balance instead of being deposited to the bank," said Dolev in a note this week.

Dolev's upbeat commentary on Square stock comes amid a slump in the share price. While shares are up 40% over the past month, they're still down 24% since Oct. 1. Increasing his price target on the stock from $108 to $110 alongside his note on Square's new business card, the analyst reiterated his buy rating on the stock.

Here's a closer look at why Dolev believes the company's new debit card makes Square stock even more attractive.

Square's new business debit card.

Square's new debit card gives businesses real-time access to their Square balance. Image source: Square.

The path to $110

"The launch of 'Square Card,' SQ's free B2B debit card, kills several birds with one stone," said Dolev in a note published to clients on Thursday. It exposes Square to an underpenetrated business-to-business (B2B) market, provides a lift to Square's gross-payment-volume dollars, strengthens the company's ecosystem, and reduces the company's reliance on banks, Dolev explained.

The card Dolev is referring to was launched last week. It's a free business debit card that is accepted anywhere Mastercard is accepted. The card "helps businesses manage their cash flow by eliminating the time between making a sale and having the funds available to spend," Square said in a press release about the new card. Businesses that use the card have instant access to sales revenue, bypassing a need to deposit their money in banks. In addition, card users receive a 2.75% discount on purchases made at other Square sellers, encouraging B2B transactions.

The card also enables business owners to easily track business and personal expenses, export data for bookkeeping purposes, and withdraw funds at ATMs.

Dolev thinks the new card could be a meaningful catalyst for the company over the long term.

Undeniable momentum

Square's business has been seeing impressive momentum recently. Revenue in the company's third quarter soared 51% year over year -- an acceleration from 48% growth in the prior quarter. Adjusted revenue, or total revenue less transaction-based costs and bitcoin costs, was up 68% year over year in Q3, up from 60% growth in Q2.

For the company's fourth quarter, management guided for adjusted revenue between $446 million and $451 million, representing 59% year-over-year growth.

While investors should be sure to do their own due diligence on stocks before they invest, Dolev has some good points about the compelling value proposition of Square's new business debit card. This new product, combined with the company's strong momentum with larger sellers and its ever-growing ecosystem of financial products and services, makes Square stock look like a compelling opportunity.

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Daniel Sparks owns shares of Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has a disclosure policy.