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Why This Top Analyst Is More Cautious on Square (SQ)


Shares in peer-to-peer payments platform Square (NYSE:SQ) have enjoyed a solid run skywards in recent months. Since the turn of the year, the stock has stepped over 90% higher, hitting all-time heights. This is exactly why Oppenheimer’s top analyst Glenn Greene advises investors to stay sidelined.

Greene assumed coverage on SQ stock with a Perform rating, without suggesting a price target. Bear in mind that Greene is one of the top analysts on Wall Street covering the financial technology sector. His picks average a 22.4% one-year return, with an 86% success rate, according to TipRanks.com. Greene is ranked #3 out of 4836 analysts.

Greene opined, “We assume coverage of Square with a Perform rating as our admiration for its SMB value proposition, strong execution and likely continued robust growth is tempered by valuation considerations. SQ’s simple, easy-to-use, and tightly integrated managed payments and software platform has gained significant traction and growth with US SMBs. We view SQ more as a SMB solutions provider than a pure payments company. While SQ has demonstrated robust growth over the past three years (we estimate an adjusted revenue growth CAGR of ~53%), we anticipate ample further runway as SQ penetrates the US SMB market, develops/markets new software solutions, and expands internationally.”

“SQ suggests its US market opportunity, with its current product set, exceeds $70B (vs. our ~$1.5B FY18 adjusted revenue estimate), and that its international opportunity is significantly larger. Like other players in the payments industry, SQ benefits from the ongoing secular transition toward electronic payments (including mobile), away from cash and checks. SQ also should naturally benefit as omni-channel commerce proliferates, and the distinctions between brick-and-mortar retail versus online and mobile increasingly blur,” the analyst continued.

Out of the 30 analysts polled in the past 12 months, 13 rate Square stock a Buy, 15 rate the stock a Hold and 2 recommend a Sell. With a downside potential of 10%, the stock’s consensus target price stands at $59.56.

 

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