I’m always looking at long-term growth options for investors, and one thing we’ve all seen in recent years is that technology stocks have been an excellent place to look for such growth. Investor appetite for this growth has now driven valuations to relatively rich levels, making many tech investments today much riskier than years past. In this sector, I’m going to point out one company I believe is worthy of the overall multiple expansion we’ve seen, and discuss my long-term take on where this company is headed.
Square (NASDAQ:SQ) is a company most may know as a hardware company, as a point of sale (POS) product for small and medium-sized businesses looking to accept credit cards. This is a very stable business, providing Square with recurring cash flows and margins resembling competitors with a "Software as a Service" (SAAS) business model. This stable foundation of revenue and earnings is now being complemented by new growth segments Square’s management team has targeted, with expansion into peer to peer lending as well as B2C (direct to consumer) lending products and other services.
The market for the business Square has targeted for long-term growth are both massive as well as extremely fragmented. Square could decide to make acquisitions to obtain expertise and grow market share quickly, while utilizing its existing customer base to grow in new segments through cross-selling, making its path to consumer acceptance relatively straightforward.
I think these directional moves are a net positive for the company, investors and consumers as well, and think the potential long-term value Square is preparing to unlock could be a game-changer for the industry and show that its current valuation is actually low right now.
Invest wisely, my friends.
