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Why Square Stock Climbed 11.6% in February

By Keith Noonan - Mar 9, 2020 at 5:05PM

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Growth for the Cash app boosted the payment-processing stock last month, but March's trading has tested investors' conviction.

What happened

Square's share price (SQ 8.52%) rose 11.6% in February, according to data from S&P Global Market Intelligence. The fintech stock gained ground thanks to strong fourth-quarter results that allowed the company to defy market pressures brought on by the novel coronavirus officially known as SARS-CoV-2.

SQ Chart

SQ data by YCharts

Square reported fourth-quarter earnings after the market closed on Feb. 26, and its results for the period came in significantly above the market's expectations. The company posted non-GAAP (adjusted) earnings per share of $0.23 on sales of $1.31 billion, coming in ahead of the average analyst target for per-share earnings of $0.21. Excluding the contribution from the Caviar food-delivery business that was recently sold off, Square recorded revenue of $620.7 million -- up 46% year over year and topping the average analyst target by roughly $27 million.

The corner of a credit card shown in a close-up view.

Image source: Getty Images.

So what

Square's big fourth-quarter beat was propelled by strong performance for its Cash app. The company's total payment-processing volume for the period came in at $28.6 billion, significantly ahead of the market's call for payment-processing volume of $28.1 billion. Revenue for the Cash app climbed 147% year over year to reach $361 million, and the service closed out the December quarter with 24 million monthly active users -- up 60% year over year. 

Now what

Despite the strong quarterly report in February, Square shares have tumbled this month as sell-offs prompted by cratering crude-oil prices and concerns about the novel coronavirus have rocked the broader market. The fintech company's shares are down roughly 21% in March so far. 

SQ Chart

SQ data by YCharts

The payment-processing market has a long runway for expansion, and Square's strong position in the space suggests that it has plenty of potential to turn its network advantage into a long-term earnings-growth catalyst. However, the company's growth-dependent valuation suggests that more near-term sell-offs are likely on the way if volatility for the broader market continues.

Square is valued at roughly 73 times this year's expected earnings and 4.8 times expected sales.

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