If you think the share price for mobile payment company Square, Inc. (NYSE:SQ) has gotten too rich, think again — there’s still lots of upside, says David Burrows of Barometer Capital, who argues that growth in the digital payment sector is far from over.
So far, Square’s 2018 has been eventful, to say the least.
The stock saw strong growth in January followed by a 20 per cent drop off in early February. After that, all SQ did was jump 60 per cent at a time when a major correction was happening across the markets. Altogether, the stock has risen 202 per cent over the past 12 months, putting it in a very exclusive club of high-performers.
But with all that growth, with its unnerving P/E and considering that the company has yet to turn a real profit, are investors correct in being cagey about Square?
“Don’t be afraid of strength in a bull market,” said Burrows, President and Chief Investment Strategist at Barometer, to BNN. “In a bull market, the first stock to double is the first one to double again. Growth stocks can go a long way.”
“In the bull market in the 1950s and 60s when multiples started to expand, people started to look for things with dividend growth and by the end, in the Nifty Fifty, they traded at 50 or 60 times earnings, companies like McDonalds and Walmart,” he says.
New data from Allied Market Research says that the mobile payment market is anticipated to grow at a compound annual growth rate (CAGR) of 33.8 per cent between 2017 and 2023, hitting a market value of US$4,574 billion by 2023.
“We’re very focused on trying to identify structural themes in the economy, changes that are taking place that go well beyond a business cycle,” says Burrows. “Those areas tend to have tailwinds for many years, and one of them has been digital payments, and Square fits firmly in that camp. We’re investors in Shopify, in Visa and we’ve been investors in Square.”
“[Square, Inc.] has been stronger than 98 per cent of the stocks in the S&P 500 over the last 12 months and they have a really solid growth rate,” he says. “I think the equity market is getting better and Square is one of the leaders in the group.”
“These multiples across various leadership groups are expanding and they can expand for a long time. And sometimes it’s because the estimate is just simply too low. If the estimate is too low, the P/E isn’t as high as people think,” Burrows says.