What happened
Shares of electronic payment company Square (SQ 1.68%) jumped 29.4% in June, according to data provided by S&P Global Market Intelligence, as e-commerce stocks rose sharply. Shares have continued their solid run in July, rising 18.4% in the first three trading days.
So what
Square got two big analyst upgrades from Barclays and Rosenblatt, which see the company's payment platform and peer-to-peer payment apps driving growth in the long term. Those upgrades will help a stock short term, but they aren't the real long-term story.
Paying with a Square system. Image source: Square.
In the broader picture, COVID-19 has made a comeback in the U.S. over the last month, which should drive more business online and to mobile platforms. There will be bumps along the way, but fundamental changes taking place in the economy today should help Square's business, and that's what's really driving shares higher.
Now what
It's hard to argue that Square and most other tech stocks are values today, given their incredibly high valuations. Square's shares now trade for 11 times sales and have a whopping 180 price-to-earnings ratio. But the bet here is that mobile payments and even mobile cash transfers continue to grow. If so, Square has an opportunity to disrupt a lot of traditional financial institutions, and that's why I think the stock still has a bright future.
