Overview:
Square, Inc. engages in the provision of credit card payment processing solutions. The firm offers additional point-of-sale services, financial services, and marketing services. The company was founded by Jack Dorsey and Jim McKelvey in February 2009 and is headquartered in San Francisco, CA.Number of Employees: 2,338
CEO: Jack Dorsey
Peer Group:
Stock Name (Symbol) | Last Price | Market Cap |
CDW Corp.(CDW:XNAS) | $87.87 | 13.2596B |
Cap Gemini SA(CAPMF:OOTC) | $116.37 | 19.5645B |
Constellation Software Inc.(CNSWF:OOTC) | $689.40 | 14.6094B |
Hexagon AB Unsponsored ADR Class B(HXGBY:OOTC) | $48.83 | 16.8305B |
NTT DATA Corporation Unsponsored ADR(NTDTY:OOTC) | $10.99 | 15.4135B |
Wipro Limited Sponsored ADR(WIT:XNYS) | $5.08 | 22.8726B |
Workday, Inc. Class A(WDAY:XNYS) | $135.26 | 29.3514B |
Vantiv, Inc. Class A(VNTV:XNYS) aka Worldpay (WP) | $79.49 | 23.9945B |
ServiceNow, Inc.(NOW:XNYS) | $160.63 | 28.8018B |
Shopify, Inc. Class A(SHOP:XNYS) | $134.81 | 14.4205B |
Atlassian Corp. Plc Class A(TEAM:XNAS) | $73.20 | 17.2250B |
Splunk Inc.(SPLK:XNAS) | $92.57 | 13.5718B |
CGI Group Inc. Class A(GIB:XNYS) | $62.58 | 17.4416B |
Square, Inc. Class A(SQ:XNYS) | $63.47 | 26.1733B |
Analysis Methodology
The goal of this analysis is to determine if there is a viable investment strategy in the stock Square.The analysis will begin by evaluating the price momentum of the market and industry using long, medium and short term measures. We'll then follow with a peer-based analysis of Square using the following six factors:
- Price Momentum
- Quality
- Growth
- Income
- Value
- Profitability.
The company with the best metric value is given a score of 14 (as there are 14 companies in the group we are looking at), the second best a 13, and so on. The ranking process is repeated for each metric and then all of the scores for the particular factor are summed. The grand total is then re-ranked and the best company for the particular factor becomes apparent.
INVRS lets you analyze a company in any way you wish. It's an extremely robust and flexible platform allowing you to easily accomplish two of the most difficult, yet profitable investment tasks: create investment models and perform peer based analysis.
Date: This analysis was performed on Sunday, November 25, 2018 and uses the closing prices from the 23rd.
Market and Sector Price Momentum Analysis
Let's start with an overview of the market and sector. Let's look at a year price graph and then review momentum.Longer Term - % Price Change over Two Years | Medium Term - 12 Month Less 1 Month Price Change | Short Term - Price Less 3 Month Moving Average | |
Market (S&P 500) | 20 % - bullish | 2% - weakly bullish | -7% - bearish |
Sector (S&P Information Tech) | 41% - bullish | 10% - bullish | -13% - bearish |
Both the market and the sector are showing a similar pattern - positive price momentum in the long-term category, becoming weaker over the medium term and turning negative in the short term. This trend is not favourable to a long position in the near term and a short could be premature.
Price Momentum for SQ and the Group
Long Term - % Price Change over Two Years /Rank | Medium Term - 12 Month Less 1 Month Price Change / Rank | Short Term - Price Less 3 Month Moving Average / Rank | Sum | Final Rank | |
SQ | 340% / 14 | 87% /14 | -20% /1 | 29 | 10 |
SHOP | 224% /13 | 33% / 11 | -7% / 8 | 32 | 13 |
TEAM | 170% / 12 | 63% / 13 | -9% / 6 | 31 | 12 |
NOW | 93% / 11 | 47% / 12 | -11% / 4 | 27 | 9 |
CDW | 71% /10 | 29% / 9 | 2% / 14 | 33 | 14 |
SPLK | 61% / 9 | 25% / 8 | -11% / 5 | 22 | 7 |
WDAY | 60% / 8 | 29% / 10 | 0% / 12 | 30 | 11 |
CAPMF | 48% / 7 | 5% / 3 | -3% / 9 | 19 | 5 |
CNSWF | 48% / 6 | 18% / 6 | -1% / 11 | 23 | 8 |
HXGBY | 44% / 5 | -2% / 2 | -7% / 7 | 14 | 3 |
VNTV/WP | 41% / 4 | 22% / 7 | -15% / 3 | 14 | 4 |
GIB | 32% / 3 | 17% / 5 | 0% / 13 | 21 | 6 |
WIT | -47% / 2 | -4% / 1 | -1% / 10 | 13 | 2 |
NTDTY | -57% / 1 | 9% / 4 | -17% / 2 | 7 | 1 |
From a purely ranking perspective, CDW has the best price momentum. SQ is fifth. However, we're seeing the same pattern we saw with the market and industry: long & medium term positive momentum turning negative in the short term. We're also seeing that the company with the greatest positive long & medium term momentum also has the greatest negative short term momentum, which happens to be SQ.
Quality
We'll look at five metrics for the factor of quality:- Earning volatility (as measured by the standard deviation of six years of earnings)
- Gross margin (gross profit divided by sales)
- Net margin (net profit divided by sales)
- Total asset turnover (sales divided by total assets)
- Financial leverage (debt as a percentage of total capital)
SD of Earnings / Rank | Gross Margin / Rank | Net Margin / Rank | Sales/Assets / Rank | Financial Leverage / Rank | Sum | Final Rank | |
CDW | 1.1 / 3 | .2 / 2 | 0 / 8 | 2.2 / 14 | .8 / 2 | 29 | 5 |
CAPMF | 1.9 / 2 | .3 / 4 | .1 / 10 | .7 / 9 | .3 / 9 | 34 | 8 |
CNSWF | 2.4 /1 | .3 / 5 | .1 / 11 | 1.1 / 13 | .4 / 7 | 37 | 9 |
HXGBY | .8 / 7 | .6 / 10 | .2 / 14 | .4 / 2 | .3 / 8 | 41 | 11 |
NTDTY | .2 / 11 | .2 / 3 | 0 / 7 | .9 / 10 | .4 / 6 | 37 | 9 |
WIT | .1 / 14 | .3 / 6 | .1 / 13 | .7 / 8 | .2 / 11 | 52 | 14 |
WDAY | .4 / 8 | .7 / 11 | -.1 / 2 | .4 / 3 | .5 / 4 | 28 | 4 |
VNTV/WP | .3 / 10 | .4 / 8 | 0 / 9 | .5 / 4 | .9 / 1 | 32 | 7 |
NOW | .8 / 6 | .7 / 12 | -.1 / 4 | .6 / 5 | .7 / 3 | 30 | 6 |
SHOP | .2 / 13 | .6 / 9 | -.1 / 5 | .6 / 6 | 0 / 13 | 46 | 13 |
TEAM | .2 / 12 | .8 / 13 | -.1 / 3 | .4 / 1 | .5 / 5 | 34 | 8 |
SPLK | .9 / 4 | .8 / 14 | -.2 / 1 | .6 / 7 | 0 / 14 | 40 | 10 |
GIB | .8 / 5 | .1 / 1 | .1 / 12 | 1.0 / 11 | .2 / 12 | 41 | 11 |
SQ | .4 / 9 | .4 / 7 | 0 / 6 | 1.0 / 12 | .3 / 10 | 44 | 12 |
Note: there were a couple of tied values in this factor, which is why it ranges from 14 to 4.
The highest quality stock is WIT, SQ was the third highest.
Growth
There are five metrics for the factor growth:- Total revenue change over 1 year
- EBITDA change over 1 year
- Free cash flow change over 1 year
- Gross margin change over 1 year
- Number of year over year growth in earnings.
Total revenue / Rank | EBTIDA / Rank | FCF / Rank | GM / Rank | # of Year of Growth / Rank | Sum | Final Rank | |
CDW | 9% / 5 | 29% / 8 | 29% / 9 | -3% / 1 | 5 / 14 | 37 | 8 |
CAPMF | 4% / 2 | 6% / 5 | 3% / 4 | -1% / 5 | 3 / 9 | 25 | 4 |
CNSWF | 17% / 7 | 25% / 7 | 13% / 6 | 1% / 7 | 5 / 14 | 41 | 9 |
HXGBY | 12% / 6 | 12% / 6 | 21% / 7 | 3% / 10 | 4 / 13 | 42 | 10 |
NTDTY | 19% / 8 | 5% / 4 | -24% / 2 | -2% / 3 | 2 / 6 | 23 | 3 |
WIT | 3% / 1 | -1% / 3 | -12% / 3 | 1% / 8 | 3 / 11 | 26 | 5 |
WDAY | 37% / 11 | 30% / 9 | 41% / 10 | 2% / 9 | 2 / 7 | 46 | 12 |
VNTV/WP | 12% / 6 | -4% / 2 | 22% / 8 | -2% / 4 | 3 / 10 | 30 | 6 |
NOW | 39% / 12 | 118% / 12 | 806% / 13 | 4% / 12 | 1 / 4 | 53 | 13 |
SHOP | 73 % / 14 | -11% / 1 | -24% / 1 | 6% / 13 | 0 / 2 | 31 | 7 |
TEAM | 41 % / 13 | 1,768% / 14 | 53% / 11 | -3% / 2 | 1 / 3 | 43 | 11 |
SPLK | 34% / 10 | 32% / 10 | 55% / 12 | 0% / 6 | 1 / 5 | 43 | 11 |
GIB | 9% / 4 | 114% / 11 | 11% / 5 | 3% / 11 | 4 / 12 | 43 | 11 |
SQ | 30% / 9 | 161% / 13 | 4,514% / 14 | 14% / 14 | 2 / 8 | 58 | 14 |
SQ has the highest growth rate.
Income
Although some of these companies in this peer group offer a dividend, SQ does not, so we won't look at this factor.Value
We'll look at five value factors:- Enterprise value over EBITDA
- Price to book
- Price to earnings
- Price to sales
- Theoretical price (as calculated using the Ohlson Clean Surplus (OCS), for more information on the valuation tool, please review this article) over current price.
EV/EBITDA / Rank | P/B / Rank | P/E / Rank | P/S / Rank | P/TP | Sum | Final Rank | |
CDW | 13 / 9 | 14 / 8 | 27 /4 | 1 / 14 | .6 / 14 | 49 | 11 |
CAPMF | 11 / 10 | 12 / 10 | 21 / 6 | 1 / 12 | 1.4 / 10 | 48 | 10 |
CNSWF | 18 / 5 | 24 / 4 | 66 / 2 | 5 / 7 | 2.8 / 8 | 26 | 8 |
HXGBY | 17 / 6 | 3 / 12 | 23 / 5 | 5 / 8 | .9 / 11 | 42 | 9 |
NTDTY | 6 /11 | 2 / 14 | 29 / 3 | 1 / 13 | 1.4 / 9 | 50 | 12 |
WIT | 14 / 7 | 3 / 13 | 19 / 8 | 3 / 10 | .9 / 12 | 50 | 12 |
WDAY | * | 18 / 6 | * | 12 / 3 | 40.8 / 3 | 12 | 2 |
VNTV/WP | 21 / 4 | 24 / 3 | 99 / 1 | 3 / 9 | 3.6 / 7 | 24 | 7 |
NOW | 1,742 / 1 | 48 / 1 | * | 12 / 4 | 164.1 /1 | 7 | 1 |
SHOP | * | 13 / 9 | * | 14 / 2 | 6.3 / 6 | 17 | 6 |
TEAM | 527 / 2 | 19 / 5 | * | 17 / 1 | 23.9 / 4 | 12 | 3 |
SPLK | * | 16 / 7 | * | 10 / 5 | 108.8 / 2 | 14 | 4 |
GIB | 13 / 8 | 3 / 11 | 20 / 7 | 2 / 11 | .8 /13 | 50 | 12 |
SQ | 252 / 3 | 32/ 2 | * | 6 / 6 | 14.3 / 5 | 16 | 5 |
* negative denominator, nonsensical value.
SQ is showing poor value, the fifth lowest score.
Profitability
There are six profitability factors:- Gross profits to assets
- Net profit margin
- 5 year average pretax return on assets
- 3 year average ROE
- Net operating income margin
- Free cash flow yield
GP TO ASSETS / RANK | NET PROFIT MARGIN | 5 YEAR AVG PRETAX RETURN ON ASSETS | 3 YEAR AVG ROE | NET OPERATING INCOME MARGIN | FREE CASH FLOW YIELD | SUM | FINAL RANK | |
CDW | .35 / 11 | 3% / 8 | 8% / 10 | 44% / 13 | 6% / 7 | 4% / 9 | 58 | 9 |
CAPMF | .19 / 2 | 6% / 10 | 6% / 9 | 14% / 9 | 11% / 9 | 5% / 11 | 50 | 6 |
CNSWF | .30 / 8 | 9% / 11 | 12% / 13 | 51% / 14 | 18% / 13 | 3% / 7 | 66 | 12 |
HXGBF | .23 / 6 | 20% / 14 | 8% / 11 | 14% / 8 | 22% / 14 | 4% / 8 | 61 | 11 |
NTDTY | .23 / 5 | 3% / 7 | 16% / 14 | 8% / 7 | 6% / 8 | 7% / 14 | 55 | 8 |
WIT | .21 / 4 | 15% / 13 | 4% / 7 | 17% / 12 | 15% / 12 | 4% / 10 | 58 | 9 |
WDAY | .31 / 9 | -15% / 2 | -9% / 5 | -26% / 4 | -14% / 2 | 1% / 3 | 25 | 1 |
VNTV | .21 / 3 | 5% / 9 | 6% / 8 | 16% / 10 | 13% / 10 | 5% / 12 | 52 | 7 |
NOW | .42 / 13 | -8% / 4 | -11% / 3 | -62% / 2 | -5% / 5 | 2% / 5 | 32 | 5 |
SHOP | .34 / 10 | -6% / 5 | -10% / 4 | -9% / 5 | -7% / 3 | 0% / 1 | 28 | 3 |
TEAM | .27 / 7 | -14% / 3 | 0% / 6 | -6% / 6 | -6% / 4 | 2% / 4 | 30 | 4 |
SPLK | .5 / 14 | -20% / 1 | -15% / 2 | -36% / 3 | -20% / 1 | 2% / 6 | 27 | 2 |
GIB | .13 / 1 | 10% / 12 | 12% / 12 | 17% / 11 | 13% / 11 | 6% / 13 | 60 | 10 |
SQ | .37 / 12 | -3% / 6 | -19% / 1 | 66% / 1 | 1% / 6 | 0% / 2 | 28 | 3 |
SQ profitability showing is poor at 3.
Summary
SQ's standout characteristic is its growth rate. Out of a group of 14 peers, it achieved the highest combined score for growth as well as had the highest individual scores for free cash flow and gross margin. It was also strong in quality, with the third highest position. The bear story is that it's expensive and it doesn't have strong profitability. Furthermore the price momentum for the stock, sector and the market appears to be at an inflection point - possible changing from direction from upward to down.
My opinion is there is a lot of risk with a position in the stock at this time. I would remain on the sidelines until a clearer story emerges.
Disclaimer
Part of intelligent investing involves taking on risk levels appropriate to one's circumstances. We don't know what your's are and this analysis should not be construed as investment advice. INVRS, its parent company, its officers, directors and employees cannot be held responsible for any investment decisions you make.
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