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How Do Square’s Fundamentals Look?

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Deciphering Square’s comprehensive valuation

Square (SQ) has an EV (enterprise value) of ~$9.3 billion. Peer companies PayPal (PYPL), Baidu (BIDU), eBay (EBAY), and Yelp (YELP) have EVs of ~$66.9 billion, ~$62.2 billion, ~$42.5 billion, and ~$2.1 billion, respectively.

Square’s EV to adjusted EBITDA (enterprise value to adjusted earnings before interested, tax, depreciation, and amortization) for the trailing 12 months is 1,573.7x. The EV to estimated EBITDA for 2017 is 74.9x. The EV-to-sales-ratio for the trailing 12 months is 5.2x, while the EV-to-sales ratio is expected to be 3.4x in 2017.

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Inside Square’s price metrics

With a book value per share of ~$1.7, Square is trading at a price-to-book value of 15.7x. The estimated book value per share of the stock is ~$0.57 for 2017. Square’s price-to-sales ratio is 5.5x, while the estimated price-to-sales ratio is 4.6x for 2017.

Dissecting Square’s debt situation

Square’s balance sheet reflects total debt of $364 million. The company reported total capital of ~$974 million. So its total-debt-to-total-capital ratio is 35.5%. The company’s debt-to-assets, debt-to-equity, and debt-to-EBITDA ratios work out to 0.22x, 55.1x, and 58.3x, respectively. The company has a debt on enterprise value of 4%.

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Inside Square’s cash flow metrics

Square has $891 million in cash on hand. The stock is trading at a price-to-cashflow ratio and a price-to-free-cash-flow ratio of 122.1x and 174.9x, respectively. Square’s trailing-12-month EV-to-cash-flow ratio and trailing 12-month EV-to-free-cash-flow ratio are 115.3x and 165.2x, respectively.

Shareholder returns and stock trends

Square generated investor returns of 10.7% in the trailing-one-month period and 175.5% in the trailing-12-month period. The company’s stock rose 1.6% in the trailing-five-day period.

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