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Should You Buy Square (SQ) Stock Before Q3 Earnings?

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Square, Inc. (SQ - Free Report) saw its stock price jump over 3% in early morning trading Tuesday after Citi analysts upgraded SQ to a “buy” just one day before the fintech firm is set to report its Q3 financial results. So, let’s see what to expect from Square to help investors understand if it looks worth buying right now. 

Upgrade

Citi is more bullish on Square as the fintech and digital banking age heats up with the likes of PayPal (PYPL - Free Report) and others set to grab more young customers. The firm upgraded Square to a “buy” on Tuesday, citing its impressive growth potential. The company also slapped a $90 price target on Square shares, which marked a roughly 20% upside to Monday’s closing price of $75.01 per share.

Citi pointed directly to Square's commitment to expand its office space and hire more employees as positive signs for future growth. "We believe the company is positioned well to grow in line with some category leaders in payments and software," Citi wrote in a note Tuesday.

"We remain convinced that Square is both a 'new market' and 'lowend' disruptor, currently growing its ownership in the micro and small business commerce enablement space – a large category that has historically been under served."

Overview

Square, which began as a credit card processing firm for small business, among other things, saw its Q2 revenues soar 48%. Meanwhile, the firm’s gross payment volume jumped 30% to $21.4 billion. The company also said that for the first time ever half of its GPV came from sellers who generate more than $125,000 in annualized GPV.

Square’s peer-to-peer payment app, the Cash App, was the #1 finance app during the second quarter in the U.S. and was on average a top-30 app in the App Store. Square’s Cash App competes directly against PayPal’s Venmo, along with JPMorgan Chase’s (JPM - Free Report) QuickPay and others in the quickly-growing p2p payment space.

Square, which was co-founded and is currently run by Twitter CEO Jack Dorsey, has long had plans to become a diverse bank and finance company. The firm currently offers loans to qualified business customers and issues Visa (V - Free Report) debit cards connected to the Cash App as it tries to take on credit card giants as well as Apple (AAPL - Free Report) and Google (GOOGL - Free Report) Pay.

On top of all of that, the San Francisco-based firm’s lending unit also landed a deal with eBay (EBAY - Free Report) this summer that will see the company offer loans to eBay sellers. More recently, Square introduce a mobile version of its payroll offering to take on Paychex (PAYX - Free Report) .

Stock Performance

Moving on, we can see that shares of Square, which went public in the fall of 2015, have soared during the past three years. SQ stock has not only crushed its industry’s average during this period but also blew away the S&P 500’s 32% jump. Shares of Square have continued to climb, up roughly 122% since the start of the year.

Plus, we should note that SQ stock closed Monday at $75.01 per share, down roughly 25% from its 52-week high of $101.15. This sets up what could prove to be a solid buying opportunity.

 

Revenue & Earnings Outlook

Our current Zacks Consensus Estimate is calling for Square’s Q3 revenues to surge over 47% to reach $860.52 million. The company’s full-year revenues are projected to touch $3.23 billion, which would mark a 45.7% climb from fiscal 2017.

It is also worth noting that Square’s gross payment volume is expected to climb by approximately 29% from $17.386 billion in the year-ago quarter to reach $22.451 billion, based on our current NFM estimates. Meanwhile, the company’s growing subscription and services unit, which is made up mostly of instant deposit, Caviar, and Square Capital, is projected to skyrocket 134% from $65 million to touch $152.62 million in Q3.

At the bottom end of the income statement, Square is expected to post adjusted quarterly earnings of $0.11 per share, which would mark a roughly 57% climb from the third quarter of 2017. Better still, SQ’s fiscal year earnings are projected to expand by 66.7% to hit $0.45 per share. With that said, we can also see that Square has topped our quarterly earnings estimates in the trailing four quarters. Furthermore, its stock price has surged following the release of many of its earnings results.

 

 

Bottom Line

Square is currently a Zacks Rank #3 (Hold) based on its nearly nonexistent earnings revision activity. Yet, Square stock could be one to consider because of its impressive top and bottom-line growth estimates, along with its position in a booming industry and its current price point.

Square is scheduled to release its Q3 financial results after the market closes on Wednesday.

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