Square Gets Hip: More Upside To Come Despite Year-Long Run

Despite a more than 185 percent gain over the past year, analyst at Oppenheimer see even more upside ahead for Square Inc SQ. Analyst Jed Kelly initiated coverage of Square's stock with an Outperform rating and 12-18 month $35 price target.

The case for owning Square's stock near its all-time highs stems from the company's ability to gain new small business customers and merchants in a "risk-efficient" manner while at the same time offering a "cohesive user experience," the analyst explained in a note. As such, Square boasts a unique and differentiated product offering in an industry that's still in the "early innings."

Specifically, Square's entire ecosystem is able to offer small businesses multiple products, including loans, eCommerce solutions, marketing services, inventory management, among others Kelly continued. Some of the more recent emerging products, including Capital, Instant Deposits, Invoices, and Build with Square collectively saw a 50 percent revenue growth in the first half of 2017 and now account for around 29 percent of total adjusted net revenue, which is a notable increase from just 1 percent in the first quarter of 2014.

"We believe analyzing the company's cohorts and incremental margins are proving SQ is generating sustainable operating leverage in its transactional business by efficiently managing risk as the merchant of record," Kelly wrote.

Square's adjusted EBITDA margins on an adjusted net revenue base is projected to grow from around 14 percent in 2017 to as much as 26 percent in 2020.

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