Few stocks have rebounded from the March lows like Square (NYSE:SQ), which has gained over 450% since that market dip. At the onset of the COVID-19 pandemic, investors worried that lockdowns would disproportionately impact Square's customer base, which includes a large proportion of small local businesses. Usage of Square's Cash app was boosted by the stimulus bill earlier this year, which allowed consumers to access  their government payments directly.

The stock kicked off this week by jumping to fresh all-time highs, thanks to a bullish  upgrade  from Wall Street.

Person using Square's Cash Card in a Square payment terminal

Square's Cash app and Cash Card are seeing higher usage as the economy reopens. Image source: Square.

Next stop: $195?

Susquehanna reiterated a positive (equivalent to a buy) rating on Square shares while analyst Jamie Friedman boosted his price target from $180 to $195. That valuation estimate represents another potential 8% upside from yesterday's close.

Friedman is optimistic about recent trends in the Cash app, as well as data from payment processing companies that show a stark increase in the usage of debit cards during the public health crisis. In a regulatory filing  in early September, Visa disclosed that total payments volumes in the U.S. had jumped by 7% in August. Debit card transactions jumped by 24% while credit card transactions fell by 8% for that month.

That bodes well for Square, as Susquehanna notes that debit cards transactions have lower interchange fees compared to credit cards. Since Square's pricing structure has the same fees regardless of whether debit or credit is used, the lower processing costs could translate into greater profitability and margin expansion. The analyst estimates that gross profit could jump as much as 15% from the shift in consumer spending patterns.

Furthermore, the Cash app has continued to enjoy strong engagement even after the stimulus-related effects have worn off. "Although Square Cash is likely off its stimulus-driven highs, the suggestion it's still growing faster than its pre-Covid levels implies to us it's here to stay," the analyst wrote in a research note to investors.

In its shareholder letter  for the second quarter, Square noted that the stimulus program strengthened the app's overall ecosystem, which includes a variety of services including peer-to-peer (P2P) payments, the Cash Card, and stock investing, among others.

The Cash app's gross profit could grow by 174%, driven by booming subscription and service revenue, in Friedman's view. The Bitcoin business is essentially breakeven, with Susquehanna expecting revenue and expenses to "net out to zero." Bitcoin trading represents another use case for the Cash app.

"While Cash revenues may have seen some months of 200%+ growth, we believe some of this has subsided as Q3 did not benefit from consumer relief payments," Friedman adds.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.