Square (NYSE:SQ) is one of the hottest stocks on Wall Street, gaining over 350% over the past three years and roughly 200% this year alone. It's an exciting company, which makes it attractive to less experienced investors. It's a widely held stock on Robinhood, a trading platform that's popular among stock market newcomers. But does it it deserve to be?

A pioneer in digital payments

Square is a leading financial technology company that provides business and payment solutions for small and medium-sized businesses. It's known for its original product, the little white card reader that attaches to a device to take payments, but it's launched many new products and services since then, including an entire e-commerce setup, payments included. So while its sweet spot has been offline businesses, it's quickly becoming competition for e-commerce and peer-to-peer payment services giant PayPal Holdings, and small-business setup and solutions leader Shopify.

Business owner writing in a book and looking at a computer in a florist shop.

Image source: Getty Images.

Square has expanded its reach beyond business as well, with its peer-to-peer payments service called Cash App. Square sees these two branches as distinct ecosystems, but it also believes that it's an advantage for customers to be able to use both features together, a one-stop payment shop.

The company was only mildly affected by the pandemic on the whole because of its diverse products and services. Gross payment volume decreased in the first and second quarters as small businesses had to close, so Square beefed up its pickup and delivery options. By the third quarter, many stores had opened and Square achieved high growth. Seller growth was back in the positive, up 4% over the prior year, total revenue increased 140%, and earnings were back in the positive at $37 million.

Where Square is headed

Square pulled back along with most tech stocks recently when Pfizer announced positive clinical data on its coronavirus vaccine. Investors pulled out of buy-from-home companies on the hopes that customers might soon be shopping in person more often. But 'soon" is relative here, because it will still take some time before any vaccine is ready for the general public. In any case, Square is not tied to digital payments and has a strong offline customer base, and digital is here to stay -- even when stores reopen. Square has the right mix of online and offline to benefit in both environments. Lastly, Square has proven adept at expanding its service mix to fit current trends.

The company estimates that it has a more than $100 billion sellers market and $60 billion individual market, and it's moving into mid-size businesses to capture greater market share.

It launched new features for Cash App, including a stock trading option and cryptocurrency trading, which rival PayPal followed and also just rolled out for its individual accounts.

Square's Cash App had wild revenue growth of 574% in the third quarter. Gross payment volume increased 332% to $2.9 billion, much higher than PayPal's Venmo total payment volume growth of 61%. Venmo TPV in the third quarter was $44.3 billion, though. It will take a lot of time for Cash App to catch up, but the market is its to conquer.

Can the stock go higher?

Yes, it definitely can. It's still in high growth mode, and it's been able to challenge industry leaders successfully. It's established enough that the risk involved is lessened, but there's so much innovation and potential for growth.

So while beginner investors may be interested in Square because of the hype, there's a solid foundation, making Square an excellent choice for Robinhood investors.

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.