Surging Square Stock Overdue For Upgrades

SQ stock recently bounced off a key trendline

by Patrick Martin

Published on Feb 15, 2018 at 10:47 AM
Updated on Feb 15, 2018 at 10:47 AM

Square Inc (NYSE:SQ) stock is in focus today, after receiving a price-target hike to $43 from $37 at Deutsche Bank. The brokerage firm noted that the payment processing company has solid revenue momentum, and traders are willing to pay for high-profile growth and massive market opportunity. As a result, Square stock is up 3.8% to trade at $43.42 this morning.

After touching a record high of $49.56 on Nov. 24, SQ pulled back to its 80-day moving average. This rising trendline emerged as support during the recent broad-market retreat, and Square stock bounced sharply from here at the start of the week. The security has added nearly 27% year-to-date, and boasts a year-over-year gain of 207%. 

Nevertheless, a significant number of analysts remain skeptical, with 14 out of 32 maintaining a "hold" or "strong sell" rating. Furthermore, SQ's average 12-month price target sits at $42.20, a discount from the stock's current perch. This indicates there is plenty of room for upgrades and/or more price-target hikes to come down the pike.

Plus, short interest is up 80% since mid-August to 34.92 million shares -- a chip-shot away from its mid-December record high. SQ's ability to surge in the face of such intense selling pressure speaks volumes to its underlying strength.

In the options pits, put buying has been accelerated relative to call buying lately, with Square's 10-day put/call volume ratio on the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX) sitting just 3 percentage points from a 52-week high. An unwinding of pessimism in the options pits could also be a tailwind for SQ.

Options traders considering speculating on SQ's short-term trajectory should note the stock's elevated Schaeffer's Volatility Scorecard (SVS) of 96. This indicates that Square shares have exceeded options traders' volatility expectations during the past year -- a boon to those potentially buying premium.

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