What happened
Shares of point-of-sale payments processor Square (SQ 5.58%) jumped more than 5% in early trading today, and as of 3:10 p.m. EDT, they're still holding onto about a 2.7% gain.
You can thank Mizuho Securities for that.
Image source: Getty Images.
So what
This morning, Mizuho initiated coverage of Square stock with a buy rating and a $225 price target, promising as much as a 42% profit on shares that currently fetch just $158.
Although growing revenue quickly, Square is not a very profitable company currently. Its operating profit margin last year was a bare 0.6%, and it's turned negative since the coronavirus hit and the recession began. But as Mizuho argues in a note covered by TheFly.com, "superior" unit economics at Square's Cash App unit create the potential for the company to quadruple gross profits in that division.
Now what
Going forward, Mizuho forecasts huge gains in customers from a "tectonic" shift in how small and medium-sized businesses are operating in the pandemic. Moreover, the analyst sees users of the Cash App doubling from 30 million presently to 60 million by 2023 as Square continues to steal market share from incumbents.
Even if profits don't happen immediately, if Square can grow at the rates Mizuho projects for it, its stock could keep rising in tandem.
