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Square (SQ) stock fell 1.6% yesterday and is now down nearly 17% from its 52-week highs, even as US stock markets are trading near all-time highs. The stock only rose about 6% for the year and underperforms the S&P 500.
What is the outlook for Square stock after its underperformance in 2021? Is it a good time to buy SQ shares now?
Technical analysis of Square shares
Square stock doesn’t look too bullish on the stock. Square stock is testing its 50-day SMA and is only slightly above the level. The stock might find support at the 50-day SMA, but if it fails to hold the line, it could drop to the 200-day SMA which is currently $ 220.52. In addition, as an extension of the recent decline in SQ stock, it is approaching a death cross.
The 50-day SMA could fall below the 200-day SMA, which could signal a long-term bear market. In a death cross, the 50 day SMA breaks below the 200 day SMA and is seen as a bearish indicator. On the contrary, the move from the 50-day SMA above the 200-day SMA is a bullish sign and is known as the golden cross.
SQ stock looks neutral on the 14-day RSI (Relative Strength Index). The metric is at 48.9, which does not indicate any oversold word overbought position. RSI values ​​below 30 signal oversold positions while values ​​above 70 are associated with overbought levels.
The 12.26 MACD (Convergence Divergence Moving Average) is also giving a sell signal. Meanwhile, while SQ stock looks weak on a technical level, it looks strong on fundamentals.
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Recent developments
Square founder and CEO Jack Dorsey announced on Twitter that the company will be building a new division for decentralized financial services using Bitcoin. He explained the vertical in a series of tweets. According to Dorsey, “Like our new #Bitcoin hardware wallet, we’re going to do it completely uncovered. Open roadmap, open and open source development. @brockm lead and build this team, and we’ve got some ideas for the initial platform primitives we want to build.
Square stock forecast
Meanwhile, Wall Street analysts have a mixed rating on Square stock and its median target price of $ 281 implies a 19.5% rise from current prices. Its lowest target price is $ 175, which is over 25% off, while the highest target price of $ 380 is a 61% premium over current prices.
Of the 44 analysts polled by CNN Business, 25 rate SQ stock as a buy while 15 see it as an expectation. Four analysts have a sell or equivalent rating on the stock. Earlier this month, Moffett Nathanson reiterated his buy rating and target price of $ 300 on Square stock. Last month DA Davidson launched a hedge on SQ stocks with a buy rating and a target price of $ 275.
Yesterday, Mizuho issued a bullish note on SQ stock and analyst Dan Dolev sees a unique opportunity.
Mizuho sees huge potential in SQ stock
“We believe Cash App is on its way to becoming the ultimate neo-bank and monetary central bank of the future. This could make the purchase of SQ analogous to the purchase of JP Morgan in 1871, â€he said in his note. He believes Square has the potential to triple revenue per user on its Cash app and has a lot of potential to add to the existing customer base.
In May, Rosenblatt reiterated Square as the top pick after the fintech giant posted spectacular profits. “SQ is easily transitioning to our # 1 choice for payments after a strong quarter that signals an accelerated path to becoming a leading digital wallet with significant market share. Progress in large-scale Cash App monetization is consistent with a sharp rebound in Seller activity, â€he said in his report.
Square profits exceeded estimates
Square’s revenue adjusted for bitcoin rose nearly 44% to $ 1.54 billion. Its adjusted EPS also jumped to $ 0.41, which was well above the $ 0.16 analysts expected. Meanwhile, after more than tripling in 2020, SQ stock has come under pressure this year as investors have turned to value stocks.
There has been a widespread revaluation of growth stocks, particularly in the FinTech sector. Other growth names in the fintech industry like SOFI and Affirm are also down sharply from their peaks. SOFI and Affirm both went public in 2021. While SOFI opted for the PSPC merger route, Affirm opted for a traditional IPO. Affirm had delayed its IPO from 2020 in an attempt to raise prices. The stock has almost doubled on the quotation despite increased valuations.
Stock SQ long term forecast
However, the entire fintech space is under pressure even as traditional banks outperform the markets in 2021 amid an economic recovery and rising bond yields. However, in the medium to long term, fintech companies like Square will continue to take market share from traditional banks. Fintech and green energy are among the most promising investment themes for the next decade.
Valuation of actions squared
Square stock seems reasonably priced with an EV / NTM sales multiple (over the next 12 months) of 5.2x and an EV / EBITDA NTM multiple of 113x. The multiples may seem higher than established fintech names like PayPal, but they seem appropriate given Square’s strong growth trajectory.
The company also plays in cryptocurrencies. Square has invested some of its cash in bitcoin and also allows cryptocurrency trading on its platform. Overall, the recent drop in SQ stock looks like a good buying opportunity. Despite the short-term volatility, the stock could generate strong long-term returns.
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