Square’s foray into bitcoin trading merely extends an “overdone” stock rally and puts off an impending correction, according to one analyst.
The company recently created a buzz with a trial that enables some users of the Square Cash app to buy and sell bitcoin, but this may be too risky for investors to stomach, said BTIG analyst Mark Palmer, who downgraded Square shares to sell on Monday.
“We believe Square’s valuation already reflects emphatic and unimpeded growth while failing to factor in competitive, credit-related and macro risks that did not go away when some investors suddenly viewed its shares as a play on a trendy cryptocurrency,” wrote Palmer on Monday. “We believe Bitcoin could provide a marginal contribution to Square’s revenues if the trial succeeds, it becomes a permanent feature for all Square Cash users, and the company starts to charge a fee for trades.”
He added, “It is not optimal from a risk standpoint for Square to have its fortunes tied to those of a cryptocurrency that has frequently displayed extreme volatility.”
The analyst also cut his price target to $30, which is 39 percent lower than Friday’s closing price.
Investors are already skittish when it comes to Square’s stock.
With shares up nearly 260 percent since January, anything less than perfect performance from Jack Dorsey’s second major company tends to send shares tumbling. Square handily beat Wall Street expectations in its latest quarterly earnings report, but shares fell roughly 1.3 percent anyway.
Shares fell more than 11 percent in early Monday trading following the BTIG note.
After the company told investors about its plans to launch the bitcoin trading function on its Square Cash application, shares soared 11 percent as fascination with the cryptocurrency intensifies.
Bitcoin surged over the Thanksgiving holiday, according to CoinDesk, and continued its relentless climb on Monday, last seen trading above $9,600.
Source: Investment Cnbc
Analyst says bitcoin can't save Square's 'overdone' rally, shares fall 11% after downgrade