As I said back in July, it took a while, but Wall Street finally appreciates Square (NYSE:SQ) stock. Shares in the emerging payments giant went nowhere between late 2018 and early 2020. But with tailwinds due to the novel coronavirus pandemic, SQ stock finally took off. With a vengeance.
Year-to-date, shares have soared over 133%. In the last six months alone, the stock has rallied around 85%. Even with this tremendous performance as of late, the ship hasn’t sailed. That is to say, things are just getting warmed up.
How so? The company’s bread-and-butter, payment services for small- and medium-sized businesses, has seen some benefit from recent events. But it’s the company’s Cash App business that has been the biggest needle-mover.
This peer-to-peer payment app, giving rivals a run for their money, may be the play here with Square. Yes, part of the acceleration in Cash App’s popularity is due to the pandemic. But, don’t think of this as a one-time event.
In fact, today’s tailwind (the pandemic) is simply fueling what has been a megatrend in motion for several years–the move to a cashless society. As the world goes cashless, leaders like Square will continue to crush it.
Add in the company’s exposure to cryptocurrencies, and it’s clear this remains a winner. Even as shares trade near all-time highs, consider them a long-term buy.
SQ Stock and Near-Term/Long-Term Catalysts
After a triple-digit move higher so far in 2020, what’s next for Square shares? Granted, after such an epic move, it can be tough to do it yet again. However, there’s plenty more gas in the tank. Both in the near-term and long-term.
Firstly, the continued growth of Cash App. Sure, a lot of this application’s massive growth is due to the pandemic. And not just from an increase in peer-to-peer payment transfers. The surge in trading and investing due to the lockdowns has been a windfall for the Cash App Investing platform.
But don’t mistake this near-term tailwind as a “one and done event.” The pandemic has only accelerated the long-term “future of payments trend,” the shift of banking and financial services from old school banks and other financial institutions, to more tech-oriented companies like Square and its rivals.
Secondly, it’s expanding the range of services it provides its legacy small and medium-sized business customers. This includes the company’s move into small business lending. As we’ve seen with the leading e-commerce names out there, building your own ecosystem is one of the ingredients to long-term success. This company knows that, which bodes well for SQ stock.
Thirdly, other catalysts that can fuel growth over the long-term. Namely, the company’s exposure to cryptocurrencies like Bitcoin. Yes, the company’s crypto business isn’t exactly a major cash cow just yet, but exposure to this other megatrends is just another factor working in favor of Square stock.
Don’t Forget the Crypto Play
As Barron’s reported earlier this month, Square’s Bitcoin-related revenue is up 600% year-over-year. After the crypto bubble popped in 2018, interest in cryptos like Bitcoin waned in 2019. But, thanks to pandemic tailwinds, interest in digital currencies has surged yet again.
It’s true that Square’s Bitcoin business doesn’t exactly add much to the bottom line. Gross profits for Bitcoin trading in the past quarter was just $17 million. Yet as cryptocurrencies continue to grow as a popular store of value, this company stands to benefit.
How so? Let’s say more retail investors and individuals decide to allocate more of their assets into crypto. Are they going to go and open an account with a more niche crypto brokerage? Or, are they going to go with a site they are familiar with, like Cash App?
The answer is obvious. With over 30 million users, even if just a small share decide to dive into Bitcoin, expect this trading revenue to soar even higher. And beyond crypto trading, there’s a big opportunity if the company decides again to allow users to buy/sell goods and services using digital currencies.
Granted, this isn’t a primary catalyst, but a factor to keep in mind. As the world goes cashless and digital currencies gain critical mass, this company is well positioned to prosper.
Even After It’s Epic Run, Square Remains a Long-Term Buy
Back in March, no one could have predicted how much of a needle-mover the pandemic would be for the payment processing space. But as seen from the blockbuster results out of Cash App and the three-digit move higher in Square stock, everyone knows full well how much of a boon this has been.
It’s not all over yet. With the pandemic accelerating “future of payments” trends, don’t consider today’s strong performance a one-time thing. With tailwinds fueling megatrends, now’s the time to buy SQ stock.
On the date of publication, neither Matt McCall nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. Click here to see what Matt has up his sleeve now. As of this writing, Matt did not hold a position in any of the aforementioned securities.