Is it time to buy Square?

Payments company Square (Square Stock Quote, Chart, News NYSE:SQ) had been on a blistering pace before the ongoing coronavirus outbreak and drop in oil prices had their way with the market.

But while stocks are down across the board, investors should still be picky, says Jon Vialoux of CastleMoore Investment Counselling, who thinks Square is buy here.

Just like every other sector of the market, payments stocks have gotten slammed in recent weeks, with Mastercard down 23 per cent, Visa down 20 per cent and PayPal down 16 per cent.

Square has been no different and in fact has been the worst of the bunch.

Range-bound for a couple of years, the stock looked to be headed for higher ground after a well-received quarter in late February, but it too has fallen hard, now almost 40 per cent off its recent high of $86.21 and trading as low as $62.78 on Wednesday.

But Vialoux, portfolio manager and research analyst for CastleMoore, said even though Square’s momentum was cut short by the current market calamities, you can bet the positive sentiment towards the stock will be remembered in the days ahead.

“This has been an easier one to call over the past couple years,” said Vialoux, looking at Square’s chart while appearing on BNN Bloomberg Tuesday. “See this defined trading range — out about $50, let’s call it that with $83 on the upside? Whenever it gets down to $50, you want to buy it, whenever it gets up to $83 you want to be selling and that has worked very quite well over the past couple of years.”

“But what you want to be looking for, and there's no general rule — you could say that it's down 10 per cent today and you want to wait three days for that to settle down, that’s kind of like the general rule of thumb in the technical analysis world — but what I'm more enticed by is the relative performance. You want to be buying things that have held up rather well and have actually shown buying demand.”

“And coming into this pullback, you actually had the relative performance which was trending higher. People were enticed by this. They were buying it in January and February much more than the market, which suggests that they want to be exposed to it,” he said.

Square saw its share price jump by as much as ten per cent on the company’s fourth quarter financials as the company posted revenue up 41 per cent to $1.31 billion and net income of $390.9 million or $0.83 per share, up from a loss of $27.7 million or negative $0.07 per share a year earlier. Analysts had been expecting a profit of $0.21 per share.

“If you can get that ideal entry point on an absolute basis at $50 I think that would be the logical place to pick it up,” says Vialoux. “Don’t wait your your three days or whatever. You want to be buying things that are actually showing buying demand because you want to be buying things that everyone else is buying.”