Sq. (NYSE:SQ) stock has been on a tear this yr. Cash App, its cell value service, rocketed in recognition as Individuals turned to the app for unemployment benefits and stimulus checks. Some analysts now estimate that Cash App is worth 60% of your full value of SQ stock.Current: Piotr Swat / Shutterstock.comAnd that makes me excited referring to the stock.Right this second, Sq. not seems to be like like a price processor for shops. In its place, it’s flip correct proper right into a P2P platform with 30 million energetic buyers and $260 million internet revenues. In plenty of phrases, it’s now a fintech firm.Nevertheless inserting aside the hype for a second, is Sq. an exquisite funding for 2021? With shares at all-time highs, right correct proper right here’s what that you’d look at investing in SQ.SQ Stock: An Unintentional SuccessIssues weren’t regularly so shiny for high-flying Sq.. Regardless of progress averaging 43% per yr between 2013 and 2019, the company didn’t cowl its monumental overhead costs. And for good motive: Sq. wanted to wrestle in opposition to enterprise heavyweights: Fiserv (NASDAQ:FISV), Fidelity Nationwide Data Suppliers (NYSE:FIS), and Worldwide Funds (NYSE:GPN).Collectively, the three incumbents made Sq.’s life laborious. Shopper retention fees are extreme all via the point-of-sale (POS) enterprise, forcing Sq. to intently low value (and gives away free merchandise) to grasp treasured market share.In plenty of phrases, Sq. was all via the mistaken enterprise.The company, nonetheless, stumbled upon its private success in 2017.Cash App and Neighborhood ResultsIt was admittedly a gradual start. Sq. launched Cash App in 2013 to a relatively muted reception. The app itself was comparatively easy. Prospects would hyperlink their debit card to a Cash App account, create a $cashtag username, and ship cash to anyone else with a $cashtag.Nonetheless, few people used the app resulting from no particular person else did.As anyone who’s ever used a fax machine is aware of, fax machines are solely useful in case your meant recipient moreover has one.All that changed in 2017. And it wasn’t the fax machine.In an beautiful promoting blitz, Sq. created “Cash App Friday,” a weekly giveaway of cash to people who tweeted to Cash App’s account. Observe that Twitter (NYSE:TWTR) could possibly be owned by Sq.’s CEO, Jack Dorsey.Making a gift of free cash may sound like a wierd enterprise approach to some. Nonetheless it labored. By 2020, the company boasted 22 million buyers.Then Bought correct proper right here the Coronavirus …… And Cash App’s recognition handed by the roof.By making it simple for folks to easily settle for stimulus checks and unemployment benefits, Cash App had obtained proper right here all via a magic system. Deposits shot up 250% to $1.7 billion, and buyers topped 30 million.Almost in a single day, Sq. has moved away from POS and into on-line funds processing, a significantly increased enterprise. And that’s the rationale retailers ought to take a bigger check out Sq. stock for 2021.Can Cash App’s Success Remaining?Cash App’s neighborhood outcomes create a virtuous cycle in good events: together with extra buyers makes the neighborhood elevated, drawing much more buyers, and so forth.Nevertheless the identical flywheel may even run in reverse. MySpace and AOL chatrooms shortly collapsed as buyers left for quite a few suppliers.So, what are the three components that may set off Cash App’s flywheel to run in reverse?Hazard 1. Banking Regulation May Shut Cash App DownAs I’ve beforehand written, fintech corporations had an attractive helper of their success: banking pointers.After the 2008 financial catastrophe, governments created a slew of latest permitted tricks to cease a repeat. Amongst these was Basel III: pointers that pressured banks to hold much more capital.Non-bank fintech corporations skirt these new pointers. For instance, non-bank Rocket Mortgage (NYSE:RKT) can write mortgages nearly with out limit, whereas its banking opponents face stiff capital requirements. That’s how, in merely three years, Rocket has flip into a really highly effective U.S. mortgage originator.Sq. moreover sidesteps banking pointers. Nonetheless it’s starting to look extra like a bank. Sad with producing 1.5% off transactions, the funds firm began to take a spot a portion of its purchaser funds in short-term marketable securities in 2019. Right this second, 56% of Sq.’s deposits are invested in less-liquid authorities securities.And the place banking regulators “giveth”, they’re going to moreover “taketh” away.If regulators categorize Cash App as a bank, Sq.’s high-growth enterprise model will come to a screeching halt.Hazard 2. Harmful Loans May Sink the FirmIf that weren’t adequate, Sq. has moreover decided to dip its toe in lending. In August, Cash App launched a perform that may allow select buyers to borrow $200 for Four weeks at a 5% price of curiosity. Whereas 5% may sound low, it entails 60% APR, or spherical thrice bigger than the frequent bank card. And that opens Sq. as heaps as usury lawsuits.To me, nonetheless, there’s one much more pressing disadvantage: Cash App has started Sq. down the path of pure banking. Barely than offload loans to completely fully completely different lenders (as Lending Membership and Prosper do), Sq. seems poised to keep up up loans on their very non-public books.And lending is harmful.That’s why banking startups like SoFi and OneMainFinancial are valued at merely 4 events earnings, in distinction with Cash App’s 8.Three events. If Sq. begins overextending credit score rating score rating, it may shortly collapse in a financial catastrophe.Hazard 3. Bitcoin Prices May PlummetLastly, Cash App has barely shock for any would-be investor: 45% of Q2’s internet revenues obtained correct proper right here from bitcoin transactions.That’s resulting from Cash App makes on the lookout for bitcoin simple.Faucet the Investing tab in your Cash App residence current screenFaucet BitcoinPress PurchaseChoose an amount or faucet … to enter a custom-made quantityEnter your PIN and select ConfirmThere’s no cryptocurrency pockets to emphasise about … no hashed passwords … Genuinely, it’s the one method to buy bitcoin I’ve ever seen. Even Robinhood retailers must create a separate crypto account. Bitcoin alone might presumably be an enormous winner for SQ stock. Right correct proper right here’s a company that’s lastly found it’s “green-pasture” in fintech.Nevertheless reliance on bitcoin moreover comes with important risks.If bitcoin prices immediately plummet, it may flip correct proper right into a PR disaster for Cash App as purchaser crypto accounts get worn out. In 2018, an an similar story carried out out at Coinbase, a hottest cryptocurrency platform, when particular particular person numbers collapsed as crypto prices fell.What’s Subsequent for Sq. Stock?Irrespective of those three risks, Cash App nonetheless seems to be like poised to achieve 2021.Since 2008, U.S. banking pointers have carved out a specific half for “non-bank” fintech corporations that current bank-like suppliers. Cash App falls squarely in that dwelling.That talked about, I’d want to warning readers about Sq. stock. As Cash App grows, Sq. WILL be tempted to look extra like an odd bank. That’s resulting from, absent banking pointers, few corporations have ever resisted the siren’s title of using purchaser deposits to make extra cash.Historic earlier is affected by examples. Contained within the 1990s, Monetary financial monetary financial savings & Loans (S&L) failures misplaced retailers billions as they collapsed. 20 years later, leasing arms of corporations from Primary Motors (NYSE:GM) to Primary Electrical (NYSE:GE) would nearly ship their mum or dad corporations down all via the 2008 financial catastrophe.So, if Sq.’s stability sheet begins to resemble an odd bank, I’d promote immediately. The stock will perversely defend going up (Sq. is perhaps raking in extra cash), nonetheless its menace profile would shortly worsen.What’s SQ Stock price?Assuming for a second that Sq. resists the urge to level out into an odd bank. In that case, we’re capable of make the most of customary discounted cash motion (DCF) modeling and NOT concern about inserting in a big banking menace low value.Analysts presently estimate Sq.’s EBITDA to develop from $83 million in 2019 to $1.4 billion by 2023. Using these numbers come to value of spherical $132, or a -4% draw as soon as extra.Nonetheless, Wall Street’s estimates may current an enormous lack of creativeness (an issue hardly seen at enterprise capital corporations).Suppose Cash App integrates with completely fully completely different value packages. It’s not laborious to ponder Sq. producing PayPal (NASDAQ:PYPL) like revenues down the freeway. (PayPal earned $5.4 billion earnings in Q2). Rising SQ’s EBITDA to $2.7 billion in 2023 and $11.9 billion by 2029 raises sincere value to $240, a 75% upside from as we converse.How one can Play Sq. in 2021Retailers searching for to cash in on Cash App’s rising recognition may severely ponder on the lookout for Sq. stock.Nevertheless there are three caveats to this super-charged stock.Firstly, retailers ought to make sure Sq. certainly not takes on an extreme quantity of bank-like menace with out the wished capital. Secondly, Cash App is simply as terribly surroundings pleasant as its neighborhood; the second we see a decline in energetic buyers, it’s time to get out. Lastly, retailers ought to be cautious for model new banking pointers that may energy non-bank financial corporations to start displaying extra like banks.Get all three proper, and retailers will seemingly win in 2021 with SQ stock.Tom Yeung, CFA, is a registered funding advisor on a mission to ship simplicity to the world of investing. On the date of publication, Tom Yeung didn’t have (each instantly or circuitously) any positions all via the securities talked about on this textual content material.