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Why Is Square (SQ) Stock Climbing Today?

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Shares of mobile payments company Square (SQ - Free Report) are trading about 4% higher Tuesday following a pair of important analyst upgrades. The newly-public Square is looking to bounce back after losing nearly 20% of its value since its IPO in November.

One analyst, CLSA’s Leonard DeProspo, raised his rating on Square to “Buy” from “Outperform.” DeProspo argued that a recent wave of shares freeing up passed without much incident and now that risk is gone.

On May 17, approximately 64 million shares we made available to be sold by insiders following a lockup period. As DeProspo points out, 13 million shares traded on the 17th, and another 5 million traded on the 18th, but the stock’s volume quickly returned to normal levels. Notably, CEO Jack Dorsey has not sold any of his own shares in the company.

Square received another upgrade on Tuesday, this time from BTIG. The firm upgraded the stock from “neutral” to “buy” and set a price target of $12.

"We believe the stock's risk/reward is favorable at current price levels and that valuation provides a cushion against the impact of the expiration of the company's post-IPO lock-up," BTIG said in a note.

BTIG also added that Square is an “unwise short position” and did note that any price reactions to positive news are going to be multiplied by short-sellers looking to cover.

Square currently has a Zacks Rank #3 (Hold). Shares plummeted earlier this month following the company’s earnings announcement. Square posted a wider-than-expected loss of 14 cents, which was a penny worse than the Zacks Consensus Estimate.

Nevertheless, Square posted revenues of $379 million, which blew past our consensus estimate of $346 million and showed 51% growth year-over-year. The company also upped its full year revenue guidance to $615-$635 million from its previously expected $600-$620 million.

If Dorsey and the rest of the Square team can figure out how to improve margins and turn a profit on Square’s growing revenue, the stock could finally be set for takeoff. Until then, Square could continue to remain at the sub-$10 level.

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