Don’t look now but Square (NYSE:SQ) is closing in about an all-time large. Contemplating SQ stock traded as low as $32.33 throughout the mid-March correction, the 280% retrieval from the March lows is something to behold.
Resource: IgorGolovniov / Shutterstock.com
In case you were among those courageous souls to purchase at the low $30therefore, I’d praise you to your nerves of steel. You’ve been richly rewarded for your certainty bet.
The question is if those late into the Square celebration nevertheless have a chance to gain from a number of the wonderful fintechs working now.
Is it too late to purchase Square stock? I don’t think so. Here’s the reason why.
Cowen Analyst Right Around SQ Stock
Back in mid-March, amid the bloodbath, Cowen analyst George Mihalos updated Square into “outperform” out of “market perform,” saying, “[Right now is] the strongest entry point in the stock in over three decades,” Mihalos stated July 17.
Mihalos thought that things could get worse before they got better, asserting that a downturn in U.S. discretionary spending on account of this publication coronavirus would damage Square’s earnings by 8% to 12% and its adjusted EBITDA by 40% to 60%.
However, regardless of the near-term headwinds, the analyst believed Square’s earnings growth in 2021 and 2022 will be roughly 25% whilst at the same time generating higher margins and more cash to the most important thing.
For all these reasons, despite cutting on his 12-month goal price by $12 to $70, he believed there was still lots of upside.
In hindsight, we all understand that there was 280% upside down.
It’s Come a Long Way
Back in April, I proposed that investors thinking about purchasing Square, think about waiting until it dropped to the $50s. It had been at the low $60s in the moment.
“While I get Davis’ argument, I remain a Square booster. Over the next 2-3 months, I could see SQ stock falling below $50 for a stretch, providing interested investors with a better entry point. If you’re holding for the long-term (2-3 years), anywhere in the $50s should work out just fine,” I composed on April 20.
Discuss cutting too nice a line. On the subsequent 3 months, Square stock more than doubled in price. Market timing cuts both ways. If you’re holding for two to three years, the difference unrealized gains by buying at $59 rather than $61 will be minuscule.
Sometimes, we media pundits get a little too cute. This was probably one of those times.
On May 12, I recommended that buyers of Square stock in mid-March consider taking profits off the table. At the time, the stock had more than doubled from its mid-March lows. Since then, it’s gained an additional 64%.
Like a Kentucky Derby-winning thoroughbred, sometimes you just have to let it run.
However, when I see that the very same analyst who was bang-on about Square being undervalued, downgraded its stock July 9 to market perform from outperform because of its massive move since mid-March — Mihalos did raise target price by $40 to $119 — I wonder if the man is about to strike oil a second time.
Mihalos believes that Square’s Seller business will require several decades of recovery due to Covid-19, which has severely affected small- and medium-sized companies, the company’s bread and butter. As a result, he believes PayPal (NASDAQ:PYPL) and other payments companies make more sense at the moment.
It’s Not Too Late to Buy
If you buy today at $129, where it’s trading as I write this, and you hold for three to five years, I don’t think there’s any question you’ll get a reasonable return on your investment.
On the other hand, it likely doesn’t hurt to wait for Square to report its second-quarter 2020 results on August 5, to get a better understanding of what Covid-19’s meant to both its Sellers business as well as the entire company before jumping into a long-term financial commitment.
As I said in May, long term, SQ stock is a strong buy. Nothing’s happened to change my mind.
As Warren Buffett says, “price is what you pay; Value is what you get.”
With Square, you get a lot of value.
Will Ashworth has written about investments full-moment since 2008. Publications where he’s appeared include InvestorPlace, The Motley Fool Canada, Investopedia, Kiplinger, and many others in both the U.S. and – Canada. He especially enjoys producing model portfolios which endure the test of time. He resides in Halifax, Nova Scotia. In the time of the writing Will Ashworth failed to maintain a position in any of the above securities.