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Why Square Stock Jumped Today

By Joe Tenebruso – Jul 6, 2020 at 3:29PM

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Analysts are growing increasingly excited about the potential of Square's Cash App.

What happened 

Shares of Square (SQ 2.15%) rose on Monday following bullish analyst comments. As of 3:05 p.m. EDT, the fintech stock was up more than 5% after rising as much as 13% earlier in the day. 

So what 

SunTrust analyst Andrew Jeffrey reiterated his buy rating on Square's stock and boosted his target price from $83 to $150. Jeffrey's new target represents potential upside of 25% for investors, based on Square's current price near $120, and signifies a new high among Wall Street analyst forecasts. 

A stock chart that rises sharply then begins to fall.

Square stock climbed on Monday after SunTrust raised its price forecast to $150. Image source: Getty Images.

Jeffrey argues that investors are currently undervaluing Square's popular peer-to-peer payment application, Cash App. He sees Cash App helping Square wrestle away market share from traditional banks, as more users deposit funds in the app in place of their checking accounts. Jeffrey says Square's growing army of merchant customers will help to accelerate this process.  

Now what 

Cash App has tremendous long-term growth potential. Square ended 2019 with roughly 24 million active customers, and it saw strong user gains in the first quarter of 2020. Analysts expect Cash App to continue to add new users at a rapid clip in the coming years while also improving its ability to generate more revenue from each user. MoffettNathanson analyst Lisa Ellis goes so far as to place Cash App's value at as much as $30 billion -- or more than the rest of Square's business combined.

If Cash App can continue to grow users and revenue at impressive rates -- and recent operating metrics suggest it will -- it could propel Square's stock to $150, and perhaps much higher, in the year ahead.

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 September 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

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