Shares of Sq. (ticker: SQ) have surged 215% this yr to round $197. The valuation seems steep, as Barron’s has famous. However the stock has defied skeptics, and Mizuho sees the shares gaining greater than 50% over the subsequent yr. Analyst Dan Dolev raised his price goal to $300 this week, largely on the power of Sq.’s extremely worthwhile and fast-growing Cash App.
“Like good wine—and in theory, marriage too—Cash App’s cohorts are improving over time,” Dolev writes, referring to Cash App’s energetic consumer base.
Dolev argues that Sq. is discovering enticing new methods to monetize Cash App, which competes with PayPal’s (PYPL) Venmo and different peer-to-peer fee providers. Sq. makes cash off the app by charging charges for fast deposit, which accounted for 54% of the app’s gross income within the third quarter, Dolev estimates. However that’s down from 80% in 2018, reflecting quicker development in different areas, together with a debit card, enterprise funds, and buying and selling of Bitcoin.
Dolev elevated his gross revenue estimates from the app from $2.eight billion in 2020 to $7.7 billion by 2023 as its consumer base jumps from 32 million to 66 million energetic customers. Cash App can be gaining on Venmo within the 15 most populous states, primarily based on Google searches, he provides. Cash App accounted for 60% of searches in key markets since April, up from 39% in 2018.
One caveat to all that is Bitcoin. Sq. acts as a dealer for Bitcoin, shopping for the digital foreign money and promoting it to clients, who retailer and commerce it on Cash App. Sq. advantages when Bitcoin costs rise and quantity will increase. Bitcoin costs have greater than doubled this yr, together with a surge of greater than 80% since September. But when demand and pricing plummet, so too will Sq.’s gross income.
One different headwind for Sq.’s stock is valuation: Shares commerce at 174 instances estimated 2021 earnings. PayPal trades at 42 instances earnings.
(ADYEY), a Dutch digital funds stock that’s rising quickly, trades at 121 instances earnings, making Sq. maybe probably the most richly valued.
Nonetheless, Dolev argues that the shares are undervalued, saying they’re worth $300 or 15 instances 2023 gross sales. That will be greater than double Sq.’s already steep price to gross sales of seven instances, which may be a stretch even for followers of high-growth stocks.
One funds stock that’s extra of a value play is Fiserv (FISV). The corporate runs a “merchant acquiring” enterprise for retailers, establishing and managing their fee techniques, and it handles e-commerce and fee processing for banks. The stock is down 2% this yr because of strain on service provider buying as retail gross sales quantity shifted additional into on-line channels throughout the pandemic.
However that’s the chance, argues MoffettNathanson analyst Lisa Ellis. She upgraded Fiserv stock to a Purchase with a $145 price goal this week and raised her earnings estimates for 2021.
Why get bullish now? Fiserv’s earnings are holding up surprisingly nicely, she writes, anticipating the corporate to publish $4.44 a share this yr and $5.44 in 2021, a achieve of 23% The stock’s valuation seems interesting at 21 instances estimated 2021 earnings, a slight low cost to the
And service provider buying is in a more healthy aggressive place, she argues, noting that Fiserv ought to keep its market share and develop revenues 14% in 2021. Fiserv is making headway with small and midsize companies with its Clover funds platform, and the corporate has a “strong international presence in high growth countries” akin to Brazil and India.
Ellis expects the stock to earn a better a number of as earnings and income development reaccelerate, fueled partly by ongoing cost-savings from its massive 2019 merger with First Information. Fiserv additionally has new CEO, Frank Bisignano, who’s more likely to push the corporate into new e-commerce areas. And extra mergers are possible, Ellis argues, partly as a result of Fiserv seems comparatively under-leveraged. Acquisition targets embrace
(Nexi.IT) in Europe, she notes, together with
(STNE), each primarily based in Brazil.
Write to Daren Fonda at email@example.com