Square (SQ) shares have been in a slump since March. The stock gained 45.0% in the first two months of 2019. Since then, the stock has fallen 19.0%. Square shares have risen 17.3% year-to-date.
Early in May, Square announced its first-quarter results and reported sales of $489 million—a rise of 59.0% year-over-year. The adjusted EPS rose 83.0% to $0.11 in the first quarter. Square beat analysts’ revenue estimate of $479.6 million and earnings estimate of $0.08 in the first quarter.
However, investors are concerned about Square’s profitability. The company posted a net loss in four of the last five quarters. Slowing sales growth has also impacted Square stock. Square is estimated to increase its sales 43.6% to $2.28 billion in 2019 and 34.6% to $3.07 in 2020. Although slowing, Square is still growing its revenues at a strong rate.
Square also has a food delivery business called “Caviar.” Although the food delivery space is dominated by giants like Uber Eats, GrubHub (GRUB), and DoorDash, Pentallect expects the domestic online food delivery market to reach $15.5 billion in 2022—up from $8.5 billion in 2017.
Since Square is still in the early stages of its global rollout, the future looks bright for its Caviar business. The company is continuing to expand internationally.
Square stock has a forward PE ratio of 58.7x. Analysts expect the company’s earnings to expand 59.6% in 2019, 49.3% in 2020, and 45.5% annually in the next five years. Square stock seems undervalued. The stock will move significantly higher if the company beats analysts’ estimates.
Analysts’ target price
Among the 31 analysts tracking Square, 17 recommended a “buy” and 14 recommended a “hold.” There weren’t any “sell” recommendations for Square. Analysts have a 12-month average target price of $82.97, which indicates that Square stock is trading at a discount of 26.0% to the average estimate.