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Square: Buy The Dip

Dec. 05, 2018 1:57 PM ETBlock, Inc. (SQ)119 Comments
Bill Maurer profile picture
Bill Maurer


  • Shares decline after small price target cut and market selloff.
  • Company continues to beat estimates and raise revenue guidance.
  • Company set up for the future of payments.

While it wouldn't be hard to find a big loser after Tuesday's market selloff, payments company Square (NYSE:SQ) was one of the biggest losers. While the name did see its price target cut by a street analyst, the note itself wasn't that bad and the analyst still sees tremendous upside in the stock. As the company is well positioned in the evolving global payments space, investors might want to consider buying the dip.

Stifel did maintain its Buy rating on the stock, with the price target going from $100 to $95. Considering that shares closed Tuesday at $63.51, analyst Scott Devitt believes the name will still head much higher from here. While he did talk about the potential for added competition in the future, his main concern was that Square's share count is rising thanks to investors converting some of their convertible debt for equity, so he factored that into his valuation. This isn't major news, since the company did talk about it in its Q3 shareholder letter:

We also saw cash outflows related to principal payments on certain convertible notes. Specifically, in the third quarter, holders converted an aggregate principal of $70 million of their 2022 senior convertible notes. The company settled the principal amount in cash and the balance by issuing 2.2 million shares of our Class A common stock. We expect to settle an additional $149 million principal of the 2022 notes in cash during the fourth quarter of 2018. Subsequent conversions will be settled entirely in shares of our Class A common stock.

Like many growth companies, especially ones where early investors and management hold a lot of a second share class (Class B here), Square investors are facing a bit of dilution in terms of the publicly-traded Class A. The Class A share count went from 269 million in

This article was written by

Bill Maurer profile picture
I am a market enthusiast and part-time trader. I started writing for Seeking Alpha in 2011, and it has been a tremendous opportunity and learning experience. I have been interested in the markets since elementary school, and hope to pursue a career in the investment management industry. I have been active in the markets for several years, and am primarily focused on long/short equities. I hold a Bachelor of Science Degree from Lehigh University, where I double majored in Finance and Accounting, with a minor in History. My major track focused on Investments and Financial Analysis. While at Lehigh, I was the Head Portfolio Manager of the Investment Management Group, a student group that manages three portfolios, one long/short and two long only. I have had two internships, one a summer internship at a large bank, and another helping to manage the Lehigh University Endowment for nearly a year. Disclaimer: Bill reminds investors to always do their own due diligence on any investment, and to consult their own financial adviser or representative when necessary. Any material provided is intended as general information only, and should not be considered or relied upon as a formal investment recommendation.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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