Hot Summer Stock: Square Breakout

Square is today’s IBD 50 Stocks To Watch pick among leading growth stocks. Twitter (TWTR) CEO Jack Dorsey famously founded the company, which provides point-of-sale software and hardware solutions.

On Wednesday, Square (SQ) broke out from a 254.88 cup-with-handle buy point, part of a 9 per cent rally this week. Square reported first-quarter results on May 6 that easily outperformed analyst expectations. The San Francisco-based company reported a record-breaking quarter of growth.

Since then, the growth stock has been on a tear, reclaiming both its 200-day and 50-day moving averages. Meanwhile, the stock is clearing a cup-and-handle base. Shares broke out on Wednesday and are still in a buy zone with a high of 267.

Focuses on Bitcoin

The company’s first-quarter sales increased by 266 per cent to $5.05 billion. According to IBD data, EPS increased from a loss of 2 cents per share to a profit of 41 cents per share.

Square’s revenue increased significantly as a result of its subscription and service-based products. This segment’s revenue increased by 88 per cent to $558 million in the first quarter. The company’s popular Cash App saw strong growth in the first quarter, generating $4.04 billion in revenue, a 666 per cent increase.

In 2020, Square stock experienced significant growth as investors focused on expanding its consumer Cash App. However, the digital payment processor warned that the app’s growth would slow as government stimulus payments to consumers come to an end.

Analysts expect

Analysts anticipate that the company’s second-quarter earnings will be slightly slow but will continue to increase.

The company’s earnings increase 78 per cent year on year to 32 cents per share.

Revenue expects to increase by 157 per cent to $4.9 billion, according to Wall Street. Square’s financial results for the second quarter will release after the market close on August 5.

Square announced a new $170 million investment in Bitcoin for the first quarter, in addition to its $50 million purchase in October. The company classifies Bitcoin holdings as unrealized gains on investments, excluded from adjusted earnings.

Square CEO Dorsey announced on July 15 that the company would launch a new business line to assist developers in developing Bitcoin-focused financial services products. Dorsey tweeted that Square is building an open developer platform to create noncustodial and decentralized financial services.