Please ensure Javascript is enabled for purposes of website accessibility

Why Square Stock Plunged 28.5% Today

By Joe Tenebruso - Mar 16, 2020 at 6:11PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Store closures are likely to take a toll.

What happened

Shares of Square (SQ 2.28%) lost more than a quarter of their value on Monday, as store closures related to the COVID-19 coronavirus pandemic sent investors scurrying. The stock closed down 28.6%.

So what

More than 180,000 people have been infected with COVID-19 -- the disease caused by the novel coronavirus -- and over 7,000 have died. Governments around the world have taken drastic action to combat the disease. In recent days, these measures have included closing many restaurants and other small businesses, which represent a large portion of Square's customer base.

Square earns a significant amount of its revenue from sales-based fees, and its gross payment volume will no doubt be hurt by these store closures. This will likely place a serious dent in its revenue and profit margins in the coming quarters.

A man with his head down on a table in front of a chart that rises and then falls sharply.

Square's stock got hammered on Monday after many small businesses were forced to close. Image source: Getty Images.

Now what

A bear-case scenario would include large numbers of small-business bankruptcies in the year ahead, which would likely weigh on Square's results for several years. The bull case entails a relatively short COVID-19-related shutdown, with pent-up consumer demand leading to a wave of renewed spending once stores reopen. Whether you think Square is a good buy today can be determined by which of those scenarios you believe is more likely.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and recommends the following options: short March 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Block, Inc. Stock Quote
Block, Inc.
SQ
$87.95 (2.28%) $1.96

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

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
400%
 
S&P 500 Returns
128%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/14/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.