What happened

Square (SQ 5.04%) stock shed 12% last month to trail the broader market's 1% gain, according to data provided by S&P Global Market Intelligence.

^SPX Chart

^SPX data by YCharts.

That decline still put shareholders well ahead of the market for the year, as the payments processor gained more than 150% in 2017 compared to a 20% increase for the S&P 500.

So what

December's drop wasn't sparked by worsening operating news from the company. In fact, its latest quarterly report, issued in early November, was packed with good news for investors.

Sales growth sped up to a 33% pace from 26% in the prior quarter due to healthy transaction volumes. That success combined with key wins in the growing services segment that's turning the company into a more diversified financial services provider.

A credit card being processed.

Image source: Getty Images.

In that context, the December slump likely had more to do with investors stepping back and readjusting some of their more optimistic forecasts given the stock's huge rally. For example, while Square could cash in on the growing popularity of bitcoin, its impact on the business is likely to be modest for the foreseeable future.

Now what

In the meantime, investors should judge Square's operating results against how closely they align with management's predictions. CEO Jack Dorsey and his team are calling for adjusted sales of roughly $264 million for the quarter that just closed, which will translate into a 37% increase over the prior year. Square isn't expecting to reach net profitability in the holiday quarter, but its adjusted earnings forecast sees profit ranging from $0.05 to $0.06 per share to bring full 2017 results to about $0.25 per share. The actual fourth-quarter results, plus management's outlook for fiscal 2018, will help determine whether Square's stock rally continues into the new year.