Square, Inc. (SQ) experienced impressive returns over the past year, outperforming the S&P 500. Square’s stock rose by approximately 329.3% since the beginning of 2020, compared to the S&P’s gain of about 38.1%. Despite Square’s upward trajectory, many hedge funds were selling in the first quarter.
Square is a financial technology company that provides financial services and digital payment tools to allow sellers to manage their business better and reach buyers online and in person. Square’s commerce ecosystem and hardware enable sellers to accept card payments through traditional swipes, online payment, or a tap of a card. Square also provides convenient payment methods for buyers. One of them is Cash App, a mobile payment service that allows users in the United States and the United Kingdom to transfer money to peers using a mobile phone application. Additionally, Square seeks to expand the benefits it can provide sellers and consumers by acquiring Afterpay Ltd., a consumer lending company, in the third quarter of the calendar year 2022.
Hedge Funds Are Selling
Despite Square’s impressive growth, hedge funds were actively selling the stock in the first quarter. The aggregate 13F shares held by hedge funds decreased to approximately 111.0 million from 112.3 million, a decline of about 1.2%. Overall, 50 hedge funds created new positions, 103 added to an existing one, 52 exited, and 84 reduced their holdings. Institutions decreased their aggregate holdings by about 2.1% to 285.1 million from 291.1 million. The company also slid on the WhaleWisdom Index to a ranking of twenty-eight from fifteen. However, the 13F metrics show that over the long-term, investors have been acquiring the stock starting in 2015, demonstrating Square’s long-term investment potential.
Analysts anticipate that revenue will rise over the next two years, predicting $19.2 billion in revenue by the end of 2021 and $21.6 billion by 2022. Year-over-year estimated increases could bring earnings per share to $1.84 by 2021 and $2.29 by the end of 2022.
Analysts Share Encouraging Outlooks
Square recently announced a deal to acquire Afterpay. This acquisition is likely to expand Square’s consumer base and improve the level of financial products and services offered to consumers and merchants. Many analysts have responded to the news by raising price targets. Harshita Rawat of Bernstein & Co. LLC. was enthusiastic about the acquisition, calling it “game-changing” and predicting further user growth as an outcome. Barclays Investment Bank analyst Ramsey El-Assal raised the firm’s price target on Square to $345 from $340, keeping an Overweight rating. RBC Capital Markets’ Daniel Perlin raised the firm’s price target on Square to $312 from $305, keeping an Outperform rating. Canaccord Genuity analyst Joseph Vafi also raised the firm’s price target on Square to $310 from $280, maintaining a Buy rating on shares. George Mihalos of Cowen & Co. anticipates great benefits for Square from the Afterpay acquisition and gave an Outperform rating, lifting the firm’s price target to $343 from $266.
Optimism Beyond 2021
Square may have seen a dip in hedge fund activity, but that has not dimmed the light of its investment potential. Square’s upcoming acquisition of Afterpay, and the past year of impressive growth, resulted in many analysts raising price targets. Customer demand for Square’s products and services remains strong, and multi-year earnings estimates should be encouraging to investors.