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Anatomy of Success: Square Inc. (SQ)

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A company’s Zacks Rank is a great indication of how well a company is expected to perform over the next 1-3 months.  At Zacks we discuss how this ranking system helps identify the best of the best, as only 5% of the Zacks Rank universe receives this exclusive rating of Rank #1 (Strong Buy). Not only does this ranking help identify the most elite stocks, it also enables you to stay in a particular company while it continues to see price appreciation beyond the three month horizon.  

The example below perfectly illustrates how to trade a Zacks Rank #1 stock, and how to ride the wave of earnings estimates revisions for market beating gains.

Example: Square Inc.

Square Inc. (SQ - Free Report) is a large cap growth stock that offers financial services and marketing services. The Company provides payments and point-of-sale which include hardware and software to accept payments, streamline operations and analyze business information.

On February 24th, Square received a Zacks Rank #1 a day after they announced its Q4 16 earnings results where they easily beat both the Zacks consensus earnings and revenue estimates.  The company saw revenues grow at +43% YoY with gross payment volume up +34%, and their lending business revenues increased by +81%.  Management also increased both earnings and revenue guidance for fiscal year 2017.  This announcement caused analysts to raise their earnings estimates for both FY 17, and the next two quarters.  On February 24th, SQ’s share price closed at $17.43.

The company posted two more consecutive quarters where they met or beat both the Zacks consensus earnings and revenue estimates.  Each quarter saw coverage analyst’s estimates increase for both the fiscal year, and the next two quarters.  Three months after SQ was added to the #1 Rank list, the stock price was up +26%

Then on November 8th, SQ announced Q3 earnings where they beat both the top and bottom line expectations, and raised annual guidance once again.  On November 10th the stock price closed at $39.21, a +125% increase from when it first became a Zacks Rank #1.  

The table below shows the price performance of SQ (in green), and the 12 month forward looking EPS estimate (in red) from when it became a Zacks Rank #1 till the close of the bell November 10th.

Overall, by utilizing the Zacks Ranking system, you can easily identify the elite stocks which are best positioned to beat the market on a consistent basis, and how to stay in those top stocks as they continue to grow.

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