Square (SQ), featured in today’s IBD 50 Stocks To Watch, is benefiting from a pandemic-fueled move to cashless payments. It’s also closing in on a buy point.
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The San Francisco-based company provides a point-of-sale system that allows small businesses to use mobile devices to conduct credit, debit card and smartphone based transactions. Cashless payments have grown increasingly popular during the coronavirus pandemic.
And the share of cashless business has more than doubled since pre-pandemic 2020 in the U.S., Australia, Canada, and the U.K. and nearly doubled in Japan, according to Square.
“In February 2020 in the U.S. alone, just 6.3% of Square sellers were cashless businesses, which jumped to 14% by February 2021,” the company noted in a recent report.
But that doesn’t mean people will stop using cash. According to the study conducted by Wakefield Research, 73% of American consumers and 68% of small business owners say the U.S. will never become a completely cashless society.
Stocks To Watch: Bitcoin Play
Still, the pandemic has highlighted the appeal of touch-free payments. Square also deals with another type of digital currency: Bitcoin. In 2018, it launched Cash App, which enables users to buy and sell Bitcoin. In October, Square said it bought around $50 million in Bitcoin. It followed up in February with a $170 million Bitcoin purchase.
“We believe that Bitcoin has the potential to be a more ubiquitous currency in the future,” Chief Financial Officer Amrita Ahuja said in an October news release. “As it grows in adoption, we intend to learn and participate in a disciplined way. For a company that is building products based on a more inclusive future, this investment is a step on that journey.”
IBD Stock Checkup assigns Square a highest possible 99 Composite Rating. That puts it at the top of the 35-stock credit card and payment processing group, which includes PayPal (PYPL) and Visa (V).
A 95 Earnings Per Share Rating, part of the overall composite score, also puts Square among the top stocks to watch in the group. It reflects a five-year compound earnings growth rate of 80%. Analysts expect EPS to jump 45% this year and 55% the next. Square reports its first-quarter results on May 6.
On the technical front, a 93 Relative Strength Rating means Square is beating 93% of all other stocks. Its relative strength line, which compares a stock’s performance to the S&P 500, is close to all-time highs. A move to new highs ahead of a breakout would be a bullish sign.
Headed For Breakout?
Square stock has shaped a base with a 283.29 buy point, according to MarketSmith chart analysis. It’s about 7% away from the entry. MarketSmith identifies the base as first stage. That suggests the stock could have plenty of runway left, since leading stocks tend to make their biggest advance out of early stage patterns.
But investors should note that Square stock has already staged a big prior run. It rallied 775% from its March 2020 lows to its February high. The gain from a breakout past a deep cup with handle and its 84.19 entry point is also large at 236%.
In addition to making the stringent Sector Leaders list, Square recently joined IBD Leaderboard.
Follow Nancy Gondo on Twitter at @IBD_NGondo
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