Square (SQ: $40) has taken it on the chin lately. After hitting $49 late last week, it got smoked the first two days of this week. With revenues reaching about $2.3 billion this year up from $1.7 billion, the PS ratio (price to sales) is a still high 7, but not outlandish. And every quarter that goes by this number comes down as this growth continues.
With that said, Square is one of the first firms to announce that they are embracing the new world of bitcoin and cryptocurrencies. This gave the stock a bit of juice early last week, and then the naysayers spoke up (including crazy Jim Cramer) and the stock got hit as noted above.
The company created a buzz with a trial that enables some users of the Square Cash app to buy and sell bitcoin, but this may be too risky for investors to stomach, argued an analyst from BTIG (who?), who downgraded the stock to a sell on Monday.
We view this new entry into cryptocurrencies as a trial balloon and if it works great, but if it doesn’t their core business will continue to grow. It’s like Abraham Lincoln, who failed eight times running for public office until he was finally elected President. You have to keep trying. But we wouldn’t add much weight to this discussion at this point. Let’s just wait and see. We are still big believers with this young company that continues to grow at 30%+ per year rates.
Note that at its current price of $40 it is where it was two weeks ago when it hit an all-time high of $40, so this little blip of the last two weeks is essentially nothing in the whole scheme of things.