With the world in turmoil and the financial market crashing on the Corona Virus pandemic, it is the perfect moment to start thinking in buying stocks and diversifying your personal portfolio keeping your eggs in more than a basket. Corona has created political, social, and economic issues and just the fears of recession sent the markets plunging and now tens of companies have their stocks available at discount prices. It’s like stock black Friday.
We’ll be talking about our Hot pick for today; Square Inc.
Who and What is square ?
Square Inc is one of the hot trending companies that caught our attention. It is a financial services, and mobile payment services based in San Francisco, California. Square markets several software and hardware payments products and is very secure. Square Inc was founded by Jim Mckelvery and Jack Dorsey. Jack was already the CEO of a very successful company we are use and know as Twitter Inc. Jim is a hardened Entrepreneur who also founded Calpian inc (MoneyonMobile) a platform widely used in india, Mira inc that occupies itself with several lines of business including the manufacturing of medical instruments, and Lockerdome Inc that created an ad platform with a brain, designed specifically for performance-based advertising and where the “ brain” is an AI called Neo which uses machine learning to process billions of data point allowing Neo to make intelligent decisions at lightning speed.
Why Invest in Square ?
When we make a decision on whether to invest in a company we consider the following very important factors:
- Financial statements and history
- Business model, growth, and founders
- Penetration in the Market
Analysis of the Square stock from a technical point of view :
Even if they lauched the app in 2010, the company was not publicly traded on the NYSE until in November 2015 with the ticker symbol SQ.
A Fibonacci Retracement indicator was used to analyze and predict the movement of the stock from a technical point of view. As far as we can tell the stock has had a high of 100$/share between 2018-2019. When the company was initially listed they had a net income of -154,09 M $ and their share was valued at 10$ and a revenue of approx. 850 M. from 2015 to 2018 revenue grew to 3.3 B while the net income rose to -38.45 M and finally in 2019 revenue grew to 4.71 B while the net income finally rose and became profitable at 375.45 M$ and a share price of about 82$.
It took Square almost 5 years to be profitable. Square’s adoption increased especially by people managing ecommerce businesses as their preferred secure payment gateway, and also in other domains such as property rentals from agencies and individuals running their property management firms for concepts such as Airbnb.
Since corona hit the stock price like many stocks on NYSE took a hit, and it went to 30$/share and has since then recovered almost 50% of it’s losses. As the corona virus recedes in the future, ecommerce and sales will pick up, and other business as well such as the property rentals will be back in action and square’s stock price will be back up with the increased business and confidence.
square has also introduced service, a subsidiary of theirs, called weebly which is a web hosting service that acts as a ecommerce platform that is more or less like Etsy, and shopify. The industry of ecommerce is in continual growth. Weebly is very popular and their website weebly.com is ranked 286 as of Jan 2020 on alexa which is better than shopify that ranks 844 and slightly more than etsy that ranks 143 globally. In addition to the physical devices and Bluetooth connected readers that square used to authenticate payments and the softwares that they offer on all operating systems such ios or android they have introduced a cash app where businesses and individuals can send and money securely via the app and adopted support to bitcoin trading as well. A debit card is issued by the company to be used by the account.
I want to briefly mention that Since 2014 square has launched square capital (business financing to merchants via Square), an online booking tool ( accept appointments on website except restaurants) , payroll ( process small business payroll and tax fillings), and the ability for the merchant to customize the interfaces for the platform via an application programming interface. All these products make square the amazing company that it is.
Now the Fed is doing all it can to stimulate the economy, they had already decreased Fed interest rate to a historic low of 0%. In addition to the fed’s interest rate cut, recently the House of Representatives in the U.S has approved an economic stimulus of 2.2 Trillion $ that will make it more affordable for families to manage their healthcare needs, also it represents a massive financial injection aimed at helping American workers, small businesses and industries grappling with the economic disruption. One of the major benefit that this package holds is the Direct financial assistance that is legislated into the stimulus package bill that entails the gov’t giving out to Individuals who earn $75,000 in adjusted gross income or less would get direct payments of $1,200 each, with married couples earning up to $150,000 receiving $2,400 — and an additional $500 per each child.
The payment would scale down by income, phasing out entirely at $99,000 for singles and $198,000 for couples without children.
This huge aid by the Fed and Federal gov’t will help keep things from falling apart and eventually will put back the economic on track from total collapse.
Square is currently trading at 51.9% below it’s fair value, revenue is forecasted to grow 17.04%, and as we said it become profitable this year. SQ is currently trading below fair value of 108.83. ROE is forecasted to be high in 3 years time (28.4%) . SQ has had a historical annual earnings growth of 45.7% when the industry was at 10% and market at 13.8%. SQ’s short term assets (3.2b $) exceed it’s liablities (1.7B $) while for long term the Assets are (3.2 B$) which exceed it liabilities (1.1 B $) . Finally the cash runaway analysis suggest that it is not a concern as SQ is profitable.
Risk Checks for Square include a highly volatile share price over past 3 months but it isn’t a risk for the future long term. Interest payments are not well covered by earnings, and the earning are forecasted to decline by an average of -35.2% per year for the next three years. The company is currently profitable, doesn’t pay dividend, profit margins increased, transparent, huge revenue of around 5B $ and a market cap of 23 B$.
In conclusion, as time progresses square will be back as strong as it were before corona. It’s stock price is very cheap compared to how well the company has been doing for the last 5 years. Square has been around for 5 years now, and in the last 5 years they have been working on increasing their reach, their products, services, and increasing their income. They have development amazing services, became an indispensable tool for ecommerce entrepreneurs, inserted itself in property management as a payment gateway solution, taken on payroll solutions and have proved that they can adapt, change and come up with new ideas. Square is a company that grows steadily and that is set up for more growth in the future. With a debt of 55% and ROE of 22% Square has room for improvement but the business is high quality as those number have been improving.
Recommendation: Buy
Range 51.15-52.88 $.
