Avoid buying Square stock for the time being, says this portfolio manager

Mobile payment company Square (Square Stock Quote, Chart NYSE:SQ) is seeing its share price rise in trading on Tuesday ahead of its third-quarter earnings due late tomorrow, but investors should take heed of the current market sentiment, which is negative towards the tech sector, says Jeff Parent, chief investment officer at Castlemoore Inc.

Analysts are expecting another superb performance from Square in its Q3/18 financials, predicting revenue of $414 million, a 61-per-cent year-over-year increase, on earnings of $0.11 per share, also up 60 per cent from a year ago.

“Square is a great company,” says Parent, to BNN Bloomberg. “Their products are quite amazing and that’s certainly reflected in the stock price which has more than doubled this year, even after the drop from just over $100 this year.”

“One thing that concerns me with a lot of these tech stocks is that it’s really starting to show signs of fatigue,” he says. “I think fatigue and profit-taking are setting in and I think there are a lot of people looking at other types of investments.”

Square has had an amazing run over the past year and a half, increasing almost 600 per cent in value between February 2017 and October of this year. But like the rest of the tech sector, SQ did not fare well last month, dropping 27 per cent for October, while the stock is still up 125 per cent for the year.

Tech stocks continued to slide on Monday, with the tech-heavy NASDAQ closing down 0.3 per cent with FAANG favourites Netflix, Apple, Alphabet and Amazon all down for the day. Investor sentiment seems to be taking heed of prevailing concerns over trade and regulatory impacts on tech, with some profit-taking also featuring into the mix.

But Parent says the selloff doesn’t yet speak of bargains to be had in the space in general or in Square’s case in particular.

“If you’re looking at some sector turnover, people are selling off tech and Internet stuff and moving over into some real estate income trusts because some of them have done quite well,” Parent says. “I think people are looking for better value right now and this might not be one of those stocks, from a price momentum perspective.”