ST pain, LT gainsThe last time I thought SQ was a buy was back at $150 in late October. From there, it almost doubled in 3 months ($283 or 87%), but now it is only up a meager 44% from that point just a few weeks ago.
PREAMBLE: I'm a huge believer in what SQ is doing LT
- Lending and banking (and actually competing with banks) yes!! Remember when the stock plummeted when they announced they'd do this back in 2018, and then COVID hit and they were the only ones able to provide PPP to SMBs. Talk about validation of your concept
- Bitcoin, yes
- Trading to compete with Robinhood, yes
--> SQ is truly fulfilling their goal of making finances accessible.
FUNDAMENTALS: That said, SQ stock has some key issues:
- It's a "high flyer" that grew 8.7x from its COVID low and 3.25x from its just-before-COVID high.
- High flyers are out of favor for 2021... they won so much in 2020 after all (I'm certainly not complaining)
- Volatility. Pick your favorite, reason, Jack Dorsey, Bitcoin, or trying to disrupt Wall Street...
- Market cap. Back in July 2020 I did some analysis:
July 2020: SQ =56; PYPL = 210; JPM = 295; BAC = 208; V = 414; MA = 300.
March 2021: SQ: 98; PYPL = 280; JPM = 460; BAC = 319; V = 460; MA = 358.
I won't even attempt to explain the differences between them all, but in short, SQ doubled and the others didn't.
- Ratios, Multiples, and Traditional Valuation: Following from the market cap evaluation, can you imagine what the traditional valuation methods say about SQ right now? Yeah, it's not good. PE ratio >600 was a screaming signal for me to sell (as was TSLA > 1,200, but that's for a different post)
TECHNICALS: I'm not believing in the support around $200:
- We've had a great support channel from the COVID low. We just broke it
- We had *some* weekly consolidation in September and October in the $140s and $150s ($151 being the most recent weekly low that I'm watching)
- Weekly MACD is screaming SELL
- Weekly RSI is reasonable now at 53, but with the monthly still at 74, I think we're due for further correction
- MAYBE there is some support ~$200, but since we broke down to $191 on Friday (3/5) for a while, I'm not so confident
- FIB, the 0.5 is at $157 (from COVID low to ATH)
CONCLUSION:
- I'm going to start buying back in in the $150s because I believe in the LT prospects for SQ to disrupt Wall Street.
- This represents a ~30% downside which should bring us to where weekly RSI and MACD signal buying for LT positions.
- This represents a market cap of ~70B, which would bring it in-line with the other diverse financials listed above (in terms of growth (ratio) since July 2020)
- As for price target... well, history shows us that getting back to $280 is the near-term value. Beyond that, well, I believe we'll go much higher, but I won't speculate on that yet since I don't think it'll happen until at leas 2022 if not later.