Is It Time to Buy Square?

Square Inc. (SQ) rose more than 2% on Tuesday after a Wall Street firm upgraded the point-of-sale provider, encouraging investors to “taking advantage of the recent pullback”. That decline stretched more than 21% between August and October, landing on the 200-day moving average last week. Accumulation has taken a major hit during this period, dropping to the lowest low since March, in line with losses posted by other digital transaction companies.

Underperforming After Historic 2020 Return

The stock has underperformed since December 2020, caught in a rectangular pattern that still isn’t close to resolution, higher or lower. It’s booked a small positive return so far in 2021 but has crisscrossed 2020’s last closing print multiple times, adding to shareholder frustration. Of course, they have nothing to complain about after last year’s phenomenal 346% return, tracking the market wisdom that one year’s leaders become the next year’s laggards.

Atlantic Equities analyst Kunaal Malde upgraded the stock to ‘Overweight’ on Tuesday, noting “Square’s growth prospects remain substantial as it continues disrupting consumer and business banking through strong execution against a digital-first strategy. The digital wallet market is competitive but Cash App is a leading brand with network effects, innovates quickly and has multiple monetization levers ahead. Afterpay adds incremental growth opportunities in BNPL and commerce, while the Seller segment share gains have accelerated”.

Wall Street and Technical Outlook

Wall Street consensus has improved marginally in recent months, now standing at an ‘Overweight’ rating based upon 23 ‘Buy’, 3 ‘Overweight’, 8 ‘Hold’, and 1 ‘Underweight’ recommendation. Two analysts are recommending that shareholders close positions and move to the sidelines. Price targets currently range from a low of $185 to a Street-high $380 while the stock is set to open Wednesday’s session more than $70 below the median $311 target.

Square hit a two-year low in the 30s in March 2020 and turned sharply higher, reaching the 2018 peak near 100 in June. An immediate breakout attracted intense buying interest, lifting the stock to 283.19 in February 2021. Breakout attempts in April and August failed while a trading floor near 200 has short-circuited three declines. Price action is now situated near moving average support at the center of this sideways pattern, giving bulls a short-term advantage, but a breakdown could trigger another trip to 200.

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Disclosure: the author held no positions in aforementioned securities at the time of publication.