Square SQ stock has crushed coronavirus stars such as Zoom ZM and Netflix NFLX, up a whopping 235% during the market’s comeback from its March 23 lows. The financial tech firm’s shares jumped again on Monday to hit another new high, heading into its second quarter earnings release that’s due after the closing bell on Wednesday, August 5.

SQ’s Pitch & Coronavirus Conundrum 

A decade after its founding, Square has expanded far beyond its smartphone and tablet-connected credit card readers for small and micro-sized businesses. The fintech firm’s portfolio includes a range of point-of-sale offerings, as well as debit cards, small business loans, peer to peer payments, and more.

The firm’s Cash App competes against PayPal’s PYPL Venmo and traditional giants such as JPMorgan Chase JPM in the booming P2P space. Despite its expanding portfolio, many of Square’s clients, which includes coffee shops, restaurants, bars, and smaller brick-and-mortar businesses, have been negatively impacted by the coronavirus. In-store discretionary spending accounts for roughly $3 out of every $5 in payments that Square processes, according to a Wall Street Journal report.

This is a problem given that large chunks of SQ’s revenue comes from transaction fees. The company said that its gross payment volume fell 35% in the last two weeks of March across its seller ecosystem.

Meanwhile, Cash App gross profit surged 115% for the quarter and it added its “largest number of net-new transacting active customers” in March. On top of that, SQ posted its highest-ever monthly direct-deposit volumes in April as people opted to get their stimulus checks directly deposited in the Cash App.

Square still posted 44% first quarter sales growth to top estimates, but it did report a quarterly loss. This was driven by $109 million in transaction and loan loss expenses that came from an “increase in estimated reserves” as small businesses suffer.

Other Fundamentals  

The nearby chart showcases how strong SQ has been recently. The stock is now trading at new highs of around $136 a share, after it climbed around 4% Monday. Investors can also see that Square had actually slipped from the fourth quarter of 2018 until the market’s coronavirus bottom in March.  

The 235% climb from $40 to its current price has stretched its valuation. Yet SQ still trades below its own two-year highs at 9.5X forward 12-months sales, which is also not too far off from its industry’s average. Plus, it still trades at a discount compared to PayPal’s 9.8X and fellow pandemic high-flyer Zoom’s 35X.

Outlook

Square said last quarter that its seller GPV was down 39% in April, but noted it had  “improved modestly” in the second half.

Looking ahead, our Zacks estimate calls for Square’s second quarter revenue to dip 2.9% to $1.14 billion. This clearly isn’t a great sign, but it marks an improvement from where its Q2 estimates once sat and it could have been far worse considering how bad things looked early on in the lockdown.

In a sign of economic recovery, SQ’s Q3 revenue is projected to come in flat from the year-ago period, with its full-year revenue expected to jump over 10% in 2020 and another 26% in FY21. This would mark a slowdown compared to the last two year’s 43% or higher growth, but compare favorably against FY17’s 29%.

At the bottom end of the income statement, Square is expected to swing from +$0.21 to an adjusted loss of -$0.09 per share in Q2. SQ’s adjusted fiscal 2020 earnings are projected to sink 81% to $0.15 per share.

Peeking further ahead, however, the fintech firm’s FY21 earnings are projected to soar 466% above our current year estimate to come in above 2019’s level. 

Bottom Line

Square is currently a Zacks Rank #4 (Sell), based on some of its negative earnings revision trends. Therefore, investors might want to hold off until CEO Jack Dorsey—who also runs Twitter TWTR—and management provide updated guidance.

On top of that, it could be hard to impress Wall Street given its massive climb. But then again, Apple AAPL, Amazon AMZN, and Facebook FB all climbed following their recent releases. Clearly, SQ isn’t in this group yet. Still, Square might be one to keep on your watchlist for its ability to grow long term as part of the fintech age.

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