Analyst: Buy the Dip on Square Stock

Square stock is set to bounce sharply in today's trading

by Patrick Martin

Published on Oct 12, 2018 at 9:14 AM
Updated on Oct 12, 2018 at 11:22 AM

It's been a rough week for Square Inc (NYSE:SQ) amid the surprise resignation of the company's Chief Financial Officer (CFO) Sarah Friar and a dramatic broad-market sell-off. However, Canaccord Genuity thinks this recent pullback creates a buying opportunity, and upgraded the payments processing name to "buy" from "hold," while boosting its price target by $30 to $90 -- a 30% premium to last night's close at $69.03.

Looking closer at the charts, Square stock raced to a record high of $101.14 as recently as Oct. 1, thanks to a lofty bull note.  Plus, this week's pullback was quickly contained by the equity's 140-day moving average, and SQ shares have still nearly doubled in value in 2018. Today, the shares are trading up 8.8% ahead of the bell.

But there is still plenty of underlying skepticism surrounding the long-term outperformer. Of the 30 brokerages covering SQ, 17 rate it a "hold" or "strong sell." In addition, while short interest fell 6.9% in the latest reporting period, the 25.40 million shares sold short still represent nearly 9% of the equity's total available float. This leaves the door open for more bull notes and/or short covering to fuel upside for the shares.

Those wanting to bet on a bigger bounce for SQ may want to consider a premium-buying options strategy. The stock's Schaeffer's Volatility Scorecard (SVS) reading arrives at a lofty 97 out of a possible 100, which shows the equity has tended to make larger-than-expected moves on the chart, compared to what the options market has priced in.

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