IB Net Payout Yields Model

Square: Momentum Play

One of the biggest momentum trades coming out of the market correction of 2018 will likely be Square (SQ). The mobile payments firm dipped an incredible $50 or 50% from the peak in September over $100. The stock bounced off strong support around $50. 

The biggest issue here is that Square has a market valuation of $28 billion based on nearly 500 million shares outstanding. Remember that revenue estimates for 2019 are set at $2.26 billion and any slowdown in the economy could see the mobile payments company miss revenue targets.

The biggest fundamental issue is that the stock will still trade at ~12x '19/S estimates while revenue growth is set to decline next year. The addition of a couple of acquisitions in Q3 artificially boosted growth numbers that will inadvertently contribute to the downfall of the stock.

For now, the bet is that Square rebounds with the eventual market, but one doesn't want to own the stock if $50 doesn't hold.

Disclosure: No position. Please review the disclaimer page for more details. 


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