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Why Square Stock Just Popped 6%

By Rich Smith – Aug 17, 2020 at 2:04PM

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Two Wall Street wizards are supporting the stock price today.

What happened

Shares of point-of-sale payments processor Square (SQ -1.43%) jumped out of the gate and are up 5.9% as of 12:40 p.m. EDT.

Two news items appear to be helping the stock today.

Analyst supporting a rising stock arrow.

Image source: Getty Images.

So what

First, reports that based on its latest 13F filing with the Securities and Exchange Commission (SEC), Dan Loeb's Third Point hedge fund has started a new position in Square stock, buying 800,000 shares during the quarter that ended on June 30. Investors unable to invest in the hedge fund but trying to at least track and imitate Third Point's strategy may be responding to the news by buying a bit of Square stock themselves.

At the same time, investment bank JPMorgan just came out with a new price target on Square stock, reports Saying it likes "proven scale players" and calling Square in particular a "digital winner" in the payments and processors sector, JPMorgan raised its price target to $172 per share and reiterated its "outperform" rating on the shares.

Now what

Square stock currently trades just over $150 a share after today's jump. Thus, JPMorgan's new target price appears to be promising about a 15% profit to new buyers today. In so doing, JP is breaking from the pack. According to a tally of all analysts forecasting prices for Square currently, S&P Global Market Intelligence is showing that on average, analysts think the stock is slightly over-priced at present and that Square will trade closer to $143 a share a year from now.  

Only time will tell whether JPMorgan -- or everyone else -- is right about this one. For the time being, all I can say is that at a valuation of more than 11 times sales and a staggering 218 times earnings, Square is one pricey stock, and it has a lot to prove to justify its current valuation.

Rich Smith 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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