Thanks to a combination of negative news items, Square (NYSE:SQ) is down sharply on Monday. As of 1:45 p.m. EDT, the stock is down approximately 10% and is just above the day's lows.
The stock opened slightly lower after some negative analyst sentiment surrounding the company's recent announcement of its decision to allow merchants to offer installment financing to customers. There are analyst concerns that Square Installments adds a significant amount of risk.
It's not hard to see why the new consumer lending feature could be perceived as high risk. After all, what Square is doing is close to what store credit cards do, and these lending products tend to have higher-than-average default rates, even in strong economic times.
However, the big negative catalyst of the day seems to be CEO Jack Dorsey's sale of more than 103,000 shares of Square stock after exercising options after the market's close on Friday. The sales appear to have been preplanned and don't necessarily reflect how Dorsey feels about the company's growth trajectory or the stock's valuation.
To be fair, the addition of consumer installment financing does add to Square's credit risk. Although it should be a long-term positive catalyst for the company's business, and Square uses its own proprietary data to mitigate its risk, investors seem to be a bit hesitant to call this a good move.
On the other hand, CEO stock sales, like the preplanned one responsible for most of today's drop, tend to be nonevents in the long run. In fact, I'd go so far as to call today's drop a nice buying opportunity for anyone who has been waiting on the sidelines for a better entry point.
Matthew Frankel, CFP owns shares of Square and has the following options: short December 2018 $90 calls on Square. The Motley Fool owns shares of and recommends Square. The Motley Fool has the following options: short January 2019 $80 calls on Square. The Motley Fool has a disclosure policy.