Nomura's Case For Adding Square To The FANG Trade

Investors who missed the boat on the explosive growth in the FANG group of stocks over the past decade may now have an opportunity to buy the newest potential member of the group.

The Analyst

Nomura Instinet analyst Dan Dolev listed five reasons Square Inc SQ should be the newest member of FANG(S). Dolev reiterated his Buy rating for Square and raised his price target from $86 to $125.

The Thesis

Square is showing all the tell-tell signs that differentiated the other FANG members in recent years.

“Similar to FANG stocks that have disrupted traditional markets with massive global TAMs, SQ’s fully cohesive solutions and rapid rate of innovation suggest that it is en route to disrupt the global payments ecosystem,” Dolev said in a note.

Dolev mentioned the following five reasons to lump Square in with the other FANG stocks:

1. Gross payment volume growth from customers generating at least $125,000 in GPV is accelerating.
2. Transaction profit metrics are improving.
3. Square Cash app downloads have eclipsed those of PayPal Holdings Inc PYPL payment app Venmo.
4. Recent increases in sales and marketing costs were associated with heavy up-front investments in the Cash App, and marketing efficiency should soon show signs of improvement.
5. Valuation is compelling based on Square’s 0.18 price-to-sales-to-growth ratio.

In fact, Dolev said Square’s three-year compound annual revenue growth of 45 percent is impressive even based on FANG standards.

Price Action

Square stock traded higher by 7 percent Tuesday to $92.06 per share.

Related Links:

Could Sector Rotation Be The Reason For AMD's Recent Weakness?

Q2 13F Roundup: How Buffett, Einhorn, Loeb And Others Adjusted Their Portfolio

Photo credit: Mybloodtypeiscoffee (Own work), via Wikimedia Commons