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Why Square Could Easily Hit $100

By David Jagielski – Aug 27, 2019 at 2:56PM

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Square's growth potential makes the stock's current price a steal considering it has only scratched the surface of what it can likely achieve.

Square's (SQ -7.30%) stock has fallen by more than 20% in the past month, and there may be no better time to buy shares than right now. 

The stock has been declining during the whole month of August as news broke that the company plans to sell its food delivery service Caviar and that management was lowering guidance for Q3. These events did not sit well with investors. However, it may an extreme reaction, given that the company actually beat earnings and revenue expectations for Q2, and that it sold Caviar for a handsome profit ($410 million compared to the $44.3 million it paid for Caviar five years ago). Square has instead decided to focus on its core business, which is never a bad idea, especially considering how lucrative it could become.

Why Square's business model is a safe bet for investors

What makes Square attractive for investors is the simplicity of its business. Allowing merchants, vendors, and anyone selling anything the ability to take credit card payments by using a small device is an easy sell to potential consumers. Credit card terminals can cost hundreds of dollars a month or more, depending on the model. That's in addition to a monthly processing fee required to keep it up and running, plus interchange fees that are added on top of that for every transaction. It's easy to see how expenses quickly rack up for even small business owners, let alone ones with larger operations that require several terminals. 

Square effectively undercuts those fees by a vast margin with its cheaper terminals that are mobile and easy to move. The company offers a variety of different options for merchants with nothing more than transaction fees incurred by the vendor. Square even offers a free card reader, although there are options to upgrade for more advanced devices. The recurring theme for Square is flexibility, and it offers merchants a lot of it.

For many vendors doing business online, Shopify (SHOP -9.48%) has been the default option, but not everyone is online just yet and many merchants still have brick-and-mortar stores. Even Amazon (AMZN -4.77%) has looked into opening physical locations.

A Square terminal

Image Source: Square

Reaching $100 is not unrealistic

Square's stock has reached $100 before, and it's very possible that it returns to that level yet again, before the year is over. Although the company isn't profitable today, Square has been making strides in getting closer to its breakeven point, and once it does, investors are likely to rally around the stock. 

With revenues up 44% year over year in its most recent quarterly earnings, Square has the strong growth numbers investors are looking for. Throw in a positive net income figure, and you've got a recipe for a stock that could soon have all the necessary ingredients for a big break out.

Why Square is a good buy for investors today

Square has accomplished a lot over the years, but what should get investors most excited about the stock is the amount of growth it still has left. Nearly $4 billion in revenue generated in just the past four quarters is impressive, but still, it could get much higher. Without being limited by geographical boundaries, there are markets all over the world that Square could potentially tap into, and the growth runway has no end. Consider that Visa (V -0.95%) generates more than $5 billion in sales in just one quarter.

There's a lot going well for Square today, and investors have a great opportunity to buy the stock on a what's turned out to be a big dip in price.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. David Jagielski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon, Shopify, and Square. The Motley Fool has the following options: short September 2019 $70 puts on Square. The Motley Fool has a disclosure policy.

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Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
$57.41 (-7.30%) $-4.52, Inc. Stock Quote, Inc.
$114.56 (-4.77%) $-5.74
Visa Inc. Stock Quote
Visa Inc.
$183.83 (-0.95%) $-1.76
Shopify Inc. Stock Quote
Shopify Inc.
$27.21 (-9.48%) $-2.85

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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