Shares of Square Inc. soared Tuesday after an analyst said that the company is doing for the payments sector what Facebook Inc., Amazon.com Inc., Netflix Inc., and Alphabet Inc. did for the technology industry.
“Similar to FANG stocks that have disrupted traditional markets with massive global total addressable markets, Square’s SQ, +10.82% fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem,” wrote Instinet’s Dan Dolev, in a research note titled “Adding the ‘S’ to FANG(S).”
He upped his price target to $125 from $86, and his new target is a whopping $24 higher than the second-highest target listed on FactSet. Square shares jumped 10.8% in Tuesday trading, marking the stock’s best single-day performance since February 2017.
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The stock has been on a tear over the last year, rising 247%, while shares of rival PayPal Holdings Inc. PYPL, +0.47% have rallied 42% and the S&P 500 SPX, -0.13% has climbed just 17%. But despite the massive price appreciation, Dolev argued that the shares still aren’t expensive considering that the company is expected to grow revenue at a 45% compound annual growth rate over the next three years. This metric “makes it screen more attractively than many payment peers and FANG stocks,” he wrote.
Dolev also pointed to the company’s success in attracting more large merchants to its platform; gross payment volume from sellers doing $125,000 or more in annual card sales is up eightfold since the beginning of 2014, he said. And though larger sellers make up an increasing portion of volume, Square has been positively surprising investors with its transaction-profit metric.
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Also on Tuesday, Square announced a new, dedicated app for its existing payroll product, which will enable employers to more easily approve time cards and pay their workers. Payroll is part of Square’s “subscription and services” offerings, and the company has been successful over the past several quarters in getting more merchants to try these add-on, generally high-margin services.
Square offers lending, instant-deposit, and invoicing products, among others, in addition to payroll services.
Jefferies analyst John Hecht took a closer look at such non-payments businesses in a Tuesday note, and he concluded that these products are “no doubt well positioned” but that Square shares still look fully valued. He upped his price target to $88 from $63 but kept his hold rating intact.
