The stock is trying to settle above the $230 level.
Square Video 31.03.21.
Shares of Square gained strong upside momentum after KBW upgraded the stock. Digital payments companies have done well during the pandemic, and Square stock moved from the $60 level at the beginning of 2020 to the highs near the $280 level in February 2021 before pulling back towards $200. Currently, Square shares are trying to settle back above the $230 level.
The market expects that trends which gained strength during the pandemic will stay strong for the long-term, and is ready to pay a material premium for stocks in the growing industries.
Analysts expect that Square will report earnings of $1.22 per share in 2021 and $1.88 per share in 2022, so the stock is trading at 122 forward P/E. However, the market looks beyond 2022 and expects huge growth in the digital space, which provides support to Square shares at the current lofty valuation.
The market sentiment towards payments companies remains favorable. Established players like Visa, Mastercard and PayPal had a strong 2020 and started 2021 on a strong note, although the recent rise in Treasury yields has put some pressure on these stocks.
Square is trading at a significantly higher valuation than more established companies so it will have to show strong growth to justify current stock price levels.
It should be noted that Square invested $50 million in Bitcoin back in October 2020, and started a new round of cryptocurrency adoption by mainstream players. With Bitcoin near all-time highs, Square shares also attract traders who are willing to be on the rapid development of the crypto market.
At this point, rising Treasury yields present the main risk for Square in the near term as higher yields put notable pressure on high-flying tech stocks. In case Treasury yields stay near current levels, investor enthusiasm towards cryptocurrencies and digital payments in general will serve as a major bullish catalyst for Square shares.
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Vladimir is an independent trader, with over 18 years of experience in the financial markets. His expertise spans a wide range of instruments like stocks, futures, forex, indices, and commodities, forecasting both long-term and short-term market movements.