How Does Square's Stock Compare To PayPal?

Square Inc SQ may be well on its way to seeing steady growth over the next several years. The payment processing company is coming off a third-quarter earnings beat and raised fiscal 2017 guidance.

The Analyst

Paul Condra of Credit Suisse.

The Rating

Condra upped his price target on Square from $26 to $31 and maintains a Neutral rating. (See Condra's track record here.)

The Thesis

Square will grow EBITA and EPS at an average rate of 40 percent over the next seven years, Condra said in a Thursday note.

The estimate is built on the assumption that average annual revenue will grow at 23 percent and adjusted EBITDA margins will reach 36 percent by 2024.

Square is expected to grow EPS at twice the rate of Paypal Holdings Inc PYPL over the same time frame, according to Credit Suisse. A good way to value Square could be to use roughly double Paypal’s valuation, Condra said.

While Paypal has a larger total addressable market — due to its online growth and international presence — Square is taking market share in brick-and-mortar and has strong margin expansion relative to Paypal, the analyst said.

The path from $65 billion in annual volume to $240 billion “is a bit harder to swallow if it is not able to meaningfully expand in online or international," Condra said.

The Price Action

Square shares gained 2 percent in trading on Thursday. At last check, Square was trading at 37.37.

Related Links:

Square Falls Following Q3 Earnings

Jim Cramer Shares His Thoughts on Square And Insperity 

Photo courtesy of Square.