4 Opportunities In Square's Future That Make It A Buy

Square Inc SQ, one of the hottest stocks of 2017, reported third-quarter results Tuesday that exceeded Wall Street's estimates but showed some signs of decelerating growth. Some investors are taking the earnings report as an opportunity to re-examine their thesis and are questioning what level of future growth is already priced into shares today.

The Analyst

KeyBanc Capital Markets' Josh Beck.

The Rating

Beck maintains an Overweight rating on Square's stock with an unchanged $40 price target. (See Beck's track record here.) 

The Thesis

Square reported a "strong" earnings report in which payment volume (GPV) growth slowed less than expected, Beck said.

Payment volume growth of 31.3 percent year-over-year represents a 60 basis point deceleration from the prior quarter and exceeded Wall Street's expectations of just a 28.5 percent year-over-year growth rate, according to KeyBanc. 

Overall, the third quarter solidified Square's success with multiple initiatives that are still early in the cycle. Looking forward, there are four key opportunities for Square to continue impressing investors:

• Ongoing product momentum in Virtual Terminal, Instant Deposit and other initiatives.
• Success with larger sellers.
• New software partners.
• A large and untapped opportunity in the international market along with new and compelling investments.

Price Action

Shares of Square were trading lower by nearly 2 percent early Thursday morning, but are up nearly 170 percent since the start of 2017 and by 200 percent over the past year.

Related Links:

How To Play Square's Crazy 14-Day Winning Streak

It's Hip To Be Square: Another Beat And Raise In Q2

Photo courtesy of Square.