- Square is an impressive business and a very expensive stock.
- The valuation leaves little room for error.
- The business changes growth engines every few years. Cash App, the current engine, is stunning. But it will slow.
- Seller ecosystem will find more competition as client size grows.
- Street analysts are bullish. Time to go against and lighten up holdings.
Square (SQ) carries the dreams of many investors who see it as ‘the future’ of commodity financial services in the retail mid-corporate markets.
No question, the company has achieved great things technologically, as well as rapid top line growth since being founded in 2009.
After strong performance in the stock this year, it is expensive. With its main Seller engine under COVID-19 pressure, SQ needs to feed hungry bulls with spectacular second engine Cash App growth to keep levitating at around 10x the multiple of operating revenue that established banks trade on.
Investors should look to lighten up if invested, and avoid starting a position for now if not invested.
Strong Alpha, consensus rec is NBUY
SQ is up 200% over the last year, outperforming fintech vehicles such as the ARK Fintech ETF by a good margin. This is a massive short-term outperformance and reflects Cash App’s stimulus beneficiary status (Sellers, as we will see, has been subdued by the pandemic).