Square (NYSE:SQ) stock is up more than 400% since its 2015 initial public offering (IPO), but the shares cooled off last year, finishing the year up 11.5%. As the year wore on, the company reported results that didn't quite meet investors' lofty expectations. Some investors have wondered whether Square has already captured the low-hanging fruit, and whether the stock is still a good investment.

Square has been a key player in the war on cash by offering small businesses an intuitive platform to accept digital payments at checkout. But with $4.3 billion in annual sales, Square is starting to bump elbows with the big boys like Capital OneJPMorgan Chase, and First Data's Clover point-of-sale solution. 

Despite the concerns over competition, Square stock is still richly valued, which means investors are still expecting lots of growth over the long term. Here are a few reasons why Square can maintain its current business momentum this year and be rewarded with a higher stock price.

A customer checking out with Square's digital register and card reader in a store.

Image source: Square.

1. More sellers joining the platform

Square continues to report strong growth on the top line. In the third quarter, revenue surged 44% year over year to $1.27 billion. What's more, management's guidance for the full year calls for adjusted EBITDA margin to be about 18%, driven by a high 30% adjusted margin from seller tools. 

The seller ecosystem, including software that helps businesses manage payroll, invoices, and Square Capital, is earning a quick payback on investment of three to four quarters, as management discussed on the third-quarter conference call. CFO Amrita Ahuja called that payback "too efficient," so they are looking to invest the excess profit in marketing to cast a wider net, bring in more sellers, and fuel revenue growth. 

This year, Square is planning to spend more on performance marketing that will be targeted at educating business owners about its seller services. Recent marketing campaigns have already shown good results in web traffic and awareness from new seller cohorts. The company has simultaneously lowered the price of hardware like Square Register and Square Terminal, which has translated to higher sales and new sellers joining the platform. 

On the call, CEO Jack Dorsey got to the heart of what this is really about -- widening the competitive moat: "Our goal here mainly is to focus our sellers and make them aware of everything that we have to offer, because if we have sellers who find value in multiple services and products from us, we build a much more durable relationship with the seller," Dorsey said. "So that's the immediate goal, but the net is, we see a pretty significant opportunity to accelerate our investment and really grow the overall base."

If Square continues to report good returns on its investments, especially with the extra spending on marketing, investors will likely reward it with a higher stock price this year. Continued rapid growth on the top line in 2020 would show that Square can continue to scale its business even in the face of greater competition.

2. The Cash app is set to have a big year

One of Square's key value propositions is that it offers a complete all-in-one solution across the seller and the buyer side. On the buyer side, the Cash app has seen tremendous growth, with revenue up 115% year over year in the third quarter. The app is now on pace to generate $600 million in annual revenue, or a quarter of Square's adjusted revenue. 

There are several ways Square is monetizing the app, with the Instant Deposit feature and the Cash Card being the two primary ones. The app has become a widely used peer-to-peer payment app, but it's branching out to other essential everyday uses for people.

As with the seller platform, Square is building the Cash app to be the Swiss Army Knife of personal finance. The latest feature is fractional stock trading, which, along with the bitcoin-trading feature, should open the door for a lot more people to join Square's payments ecosystem.

Square has found that users who are active bitcoin traders have a doubled attach rate to the Cash Card. The stock-trading feature was just launched, but it could be even more popular than bitcoin trading and steer even more users to monetizable features. Obviously, there is tremendous upside to growth here in the Cash app heading into 2020 that may not be reflected in the stock price.

What to expect

Management is calling for revenue in 2020 to be up in the low 30% range over 2019. That might look weak given the 40%-plus growth rates we are used to seeing, but keep in mind, Square is a becoming a larger business, and it's still growing relatively fast.

Investors are divided about what to think about profitability. Some might be disappointed to see Square sacrifice near-term profits in order to increase marketing expense. But the 30%-plus growth in 2020 guidance implies that there is still an enormous opportunity for Square to take market share from traditional financial service providers, so the move to invest more in marketing seems like the right one.

Of course, if Square's top-line growth dramatically decelerates down into the 20% range, that would be a sign that its growth runway might be running short, and the stock would likely stay down. But if Square maintains top-line momentum this year or exceeds its guidance, investors will likely warm up to the stock again.