Shares of Square (SQ - Free Report) just won’t stop surging, and Thursday proved no different as the company saw its stock price once again climb to a new all-time high.
Just last week, Jack Dorsey’s San Francisco-based mobile payment company submitted an application to form a wholly owned brick-and-mortar bank in Utah. The bank will reportedly be called Square Financial Services Inc. and is set to offer loans and deposit accounts for small businesses.
This move to test out the banking waters comes at a time when other fintech firms have tried to add more traditional financial institutions to their portfolios. Dorsey, who is also Twitter’s (TWTR - Free Report) CEO, has his sights set on growing his tech-based financial company in a big way.
Fintech and mobile payment companies are on the rise, but do Square’s current financials support the lofty heights its stock has reached? Let’s take a brief look at exactly what Square does and how its stock price has risen, as well as some current and forward-looking fundamentals, in order to answer this question.
Square is a widely used online and mobile-based point of sale service geared towards small and medium-sized businesses. The fintech company has a market cap of $11 billion. Square also owns food ordering and delivery services, and it offers business loans through Square Capital.
Square Capital offers merchants, who often use the company’s POS systems, the opportunity to pay back loans through automatic payments made via a portion of their point of sale transactions.
Square loans can be particularly enticing for small businesses as the company monitors merchants and then lets them know through their online portal if they are eligible for a loan. To date, Square has loaned over $1.8 billion to more 140,000 small businesses in the U.S., with the average loan size totaling $6,000.
Dorsey’s company has grown to this point without a large international presence and officially entered just its fifth country, the U.K., in March.
The San Francisco-based company’s sales are projected to gain 30.26% to hit between $566.90 million and $576.50 million this quarter. Based on the Zacks Consensus Estimate, Square’s full-year revenues are expected to top out at $2.19 billion, which would mark a 27.04% year-over-year jump.
Our current consensus estimates call for EPS growth of 40% this quarter, but the relatively nascent fintech company is projected to see an earnings loss of $0.06. Square’s full fiscal year earnings estimates call for a $0.17 per share loss, which would mark a 49.80% year-over-year improvement.
In 2018, the mobile payment company is projected to experience 100% EPS growth and post full-year earnings of $0.04 per share.
Within the last 60 days, Square received one downward earnings estimate revision for this quarter, as well as two for next quarter. However, the company also received two upward revisions for its next quarter, three for the full year, and four for the following year.
This mixed revision activity has helped the stock earn a Zacks Rank #3 (Hold). Square is also currently sporting a “C” grade for Growth and an “F” grade for Value in our Style Scores system.
Square has spent a lot of money as it rapidly expands and ventures into new business. This has caused the company to post a current cash flow loss of 44.91%, far greater than the Internet – Software industry average of a 19.38% year-over-year decline.
The fintech company’s price to sales ratio is 3.61, which is not strong, but it is also not much worse than the overall industry average of 3.14.
Shares of Square jumped over 4.50% on Thursday to hit a new all-time high of $28.80 a share. The upward movement is part of an insane 52-week climb—with minimal fluctuations—for Square’s stock from $11.28 per share a year ago. Square’s 100.07% year-to-date price change blows away the industry average of a 0.30% loss.
The company’s goal to open a legitimate FDIC insured bank could help Square reach further heights and perhaps lead to a tech-based disruption of the entire banking industry down the road.
For now, it seems that traditional investors might stay away from Square as it burns cash and sits at an all-time high. But other companies in the tech world have skyrocketed similarly, without the strongest fundamentals to support their lofty stock prices.
Investors diving into Square might view it as a possible game-changing company that has to invest heavily now in order to secure long-term staying power.
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