What happened
Shares of financial-technology company Square (SQ 5.58%) took a hit on Tuesday, falling as much as 10.7%. As of 12:15 p.m. EST, the stock was down 9.9%.
The stock's decline follows bearish commentary from Raymond James analyst John Davis. Forecasting the company's organic growth will decelerate in 2019, Davis believes shares are overvalued.
Image source: Square.
So what
"We believe organic growth peaked in 3Q18 and growth on the all-important subs and services line will likely materially decelerate in 2Q19," said Davis (via Barron's). "We believe the risk/reward is negatively skewed and recommend investors reduce positions."
Davis' estimates the stock's fair value at $56, representing about 15% downside from where shares are trading as of this writing.
Square stock has seen incredible top-line momentum recently, with revenue growth accelerating in its most recent quarter to a rate of 51% year over year -- up from 48% growth in the prior quarter. Strong growth in subscription and services-based revenue has been key to this acceleration: Subscription and services-based revenue was up 117% year over year organically in the company's most recent quarter. A slowdown in this revenue type, therefore, could lead to a meaningful deceleration in the company's overall growth.
Now what
Investors will likely have to wait until next month to find out whether the company's organic growth really has peaked. Square reports its fourth-quarter results on Feb. 27.
Management guided for fourth-quarter revenue of $895 million to $905 million, implying 46% year-over-year revenue growth based on the midpoint of this range. Square, however, has habitually reported revenue above its guidance range.
Check out the latest Square earnings call transcript.
