One of last week's biggest winners was Square (SQ 2.44%), which rose 14.1% after a report of deeper cryptocurrency integration came out and an analyst issued an optimistic update. The mobile payments provider would go on to hit new all-time highs in four of last week's five trading days. The stock is kicking off this new week with another high on Monday.
The first fresh high came on Monday of last week after a Cryptona article and Bloomberg video amplified earlier comments made by Square CEO Jack Dorsey, suggesting that its Square Cash app may facilitate consumer-to-merchant payments in bitcoin in the future. Square made waves late last year after allowing some of its Square Cash app users to buy and sell bitcoins, but Dorsey's comments imply that deeper integration into actual commerce is being considered.
Bitcoin's sharp correction -- the flagship cryptocurrency has shed more than half of its value since peaking in mid-December and is off by more than 30% in 2018 -- would seem to take some of the Wall Street shine off the crypto-related news. However, the reports were enough to get investors excited to bid Square to new highs. The stock begins this week trading 51% higher so far this year, and that's after a 154% surge in 2017. It's soared nearly sixfold since going public at $9 in late 2015.
Image source: Square.
Taking a look at the bright side of things
Wall Street was initially unimpressed by the fourth-quarter results that Square announced two weeks ago. The stock closed nearly unchanged on the news. It was a decent quarter on the surface with accelerating adjusted revenue growth and better-than-expected results on both ends of the income statement. Investors had just been spoiled by previous beats. Square had landed at least 40% ahead of analyst profit targets in each of the four previous quarters, and this time it merely beat forecasts by a penny per share.
| Quarter | EPS (Estimated) | EPS (Actual) | Surprise |
|---|---|---|---|
| Q4 2016 | ($0.09) | ($0.04) | 56% |
| Q1 2017 | ($0.07) | $0.05 | 171% |
| Q2 2017 | ($0.05) | $0.07 | 240% |
| Q3 2017 | $0.05 | $0.07 | 40% |
| Q4 2017 | $0.07 | $0.08 | 14% |
Data source: Yahoo! Finance. EPS = earnings per share.
Several analysts jacked up their price targets following the report, but it was mostly a matter of keeping up with the buoyant stock. Last week, it was Dan Dolev at Nomura Instinet professing his firm's love for the stock despite the ho-hum quarter.
Dolev wasn't impressed to find gross payment volume from Square's largest sellers sequentially unchanged from third-quarter levels. He was also concerned about a slowdown in loan growth volume. However, he decided to stick with his bullish buy rating and $64 price target, leaving room for ample upside from here. He's raising his EBITDA estimate slightly for this year, but pruning his outlook for fiscal 2019.
It's hard to bet against Square at this point. The stock has roughly tripled over the past 12 months. However, gains like last week's that were based on unconfirmed chatter are tricky to justify if they don't pan out. Square should continue being a market beater, but it will need to back up the speculation to keep hitting higher highs the way it has over the past few days.
