Square [NYSE: SQ]: Square is one of those companies that went to IPO at a valuation lower than their private equity valuation. The company went public valued at $4 billion, way less than its $6 billion valuations in private equity rounds of funding. Not many companies that IPO at a lower value than their private funding end up as successful as square is today. The company is now worth $31 billion 5 years down the line. According to an article by the Motley Fool comparing square to other companies that have had a similar trajectory, Square has got to where it is due to smart strategy execution by its management.
This rings true in all the moves that Square (SQ) has been making in the market, aimed at giving it a strategic edge in the market. One such move is the introduction of the Square business debit card in January. This card offers rebates on any purchases with square merchants, hence putting the company on a growth path in terms of subscriber numbers. That’s because, the card targets the over 40% of small businesses that don’t have a business card. Testament to Square debit card’s potential is the growth of the success of another Square product, the Square Cash card.
This card has pushed Square’s subscription numbers upwards, and is expected to bring in an average of $100 million annually by the year 2022. Clearly, the company is poised for more expansion, and could be worth much more in coming years. The company’s management clearly understands Fintech, and how to leverage technology to meet consumer needs.
These moves do reflect in the company’s share performance. In the last 52-weeks of trading, Square (SQ) is up by 60.54%, quite a significant gain considering that in the same period, the S&P 500 grew by just 7.86%. However, a further look at its charts reveals that, Square (SQ) has been trading sideways for the past quarter. At the moment, it is trading slightly below the 3-month 50-day moving average at $75.91, with the 3-month 200-day moving average at $72.20.
Nonetheless, with all the investments that Square has been making such as the Square business debit card, this stock could breakout, especially if the S&P 500 continues its current bullish run. That’s because, Square (SQ) is a stock that is highly responsive to stock market movements, on the basis of its high beta value.
The company has a beta value of 3.19. This is quite high and as long as the economy keeps growing and the markets remain positive, square is likely to grow in value exponentially in coming months. It is also supported by its growing revenues, which is key to stock price movements. The company’s quarterly revenue growth (yoy) stands at 51.40%. That’s healthy growth and given all the investments the company is making and its strong management team, it is well positioned for revenue growth. It is not surprising that analysts rate it a buy with an average price target of $83.33. Its fundamentals are right, and a significant price increase is not far-fetched.