Investors are underestimating the value of Square's (NYSE:SQ) popular mobile payment service, Cash App.

So says KeyBanc analyst Josh Beck. On Monday, he reiterated his "overweight" rating on Square's stock and boosted his price forecast from $215 to $250. Beck's new price estimate represents potential gains to shareholders of more than 40% from the stock's current price near $177.

A person is pointing to an upwardly sloping digital chart.

Square's stock is set to deliver handsome returns to investors, according to analysts at KeyBanc. Image source: Getty Images.

Beck says new products and services such as Cash Card and Direct Deposit are helping to boost Cash App's user engagement and retention metrics. In turn, Beck believes the long-term value of each subscriber is increasing, as rising average revenue-per-user trends fuel sustained growth in the coming years. 

Beck sees Square's Cash App revenue surging by more than 70% annually through fiscal 2022. He values this rapidly expanding segment of Square's business at $200 per share, and potentially as much as $300 if its new products and services continue to see soaring user adoption rates.

All told, Beck views Cash App as a "powerful consumer digital banking and commerce ecosystem with transformative potential."

Will Square's stock price hit $250?

On rare occasions, a game-changing new product can grow users and revenue so quickly that it becomes more valuable than a company's core business. This appears to be the case with Square and its incredibly popular Cash App.

The coronavirus pandemic is accelerating the trend away from cash and toward digital transactions. This is helping to boost the growth of Cash App as well as several other areas of Square's business.

So, while Beck's $250 price target may seem high, it's likely only a matter of time before Square reaches it. And these sharp gains could come sooner than many investors currently expect.

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.