Analyst Targets Triple Digits For Square Stock

There's lots of pessimism priced into SQ at the moment

by Patrick Martin

Published on Jun 28, 2019 at 9:47 AM

The shares of Square Inc (NYSE:SQ) are up 2.3% to trade at $72.93 this morning, after Instinet hiked its price target to $100 from $90. The triple-digit mark sits just under SQ's Oct. 1 record high of $101.15, and implies expected upside of 40% to last night's close. 

Square stock started 2019 off gangbusters, racing past the $80 level by March. But thanks to a weak forecast in early May, SQ had retreated back to $60 by June. The shares bounced sharply from here, and have held above $70 for the past three weeks, an area that coincides with their 160-day moving average. Plus, there is pessimism surrounding SQ to be unwound that could fuel a bigger rally.

For starters, the majority of analysts remain on the sidelines. Of the 29 brokerages covering SQ, 15 rate it a "hold" or "strong sell." The door is certainly wide open for upgrades, which could drive the equity higher.

SQ also is ripe for a short squeeze. Short interest is at its highest point since mid-March, and accounts for a healthy 9% of the stock's total available float, or 3.2 times the average daily pace of trading.

This bearishness is seen in the options pits, too. At the International Securities Exchange (ISE), Chicago Board Options Exchange (CBOE), and NASDAQ OMX PHLX (PHLX), SQ's 10-day put/call volume ratio of 0.61 ranks in the 93rd annual percentile. So, while calls have outweighed puts on an absolute basis, the high ranking shows the rate of put buying relative to call buying has been accelerated.

Echoing this, the stock's Schaeffer's put/call open interest ratio (SOIR) of 1.71 ranks in 2 percentage points from an annual high -- signaling an unusual put-skew among short-term traders. A shift in sentiment among options traders could buoy the shares.

Meanwhile, short-term Square options can be purchased for a bargain at the moment. The equity's Schaeffer's Volatility Index (SVI) of 36% is in the 8th percentile of its annual range, suggesting relatively low volatility expectations are currently being priced into near-term contracts.

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