Square: A JP Morgan for the 21st Century?

The list of “if only I had invested in xxx back then” is endless, and recent examples are likely Bitcoin in 2011, Amazon ten years earlier and Apple and Microsoft towards the end of the last century.

Sorry, sorry. However, there are always new opportunities, the key to successful investing is to be able to spot them when they arise.

Using an example from much further in the past, Mizuho Securities’ Dan Dolev believes there is currently such an opportunity that investors should consider.

“We believe Cash App is on track to become the ultimate neo-bank and the money center bank of the future,” said the 5-star analyst. “This would be buying Square (SQ) analogous to buying JP Morgan in 1871.”

Square offers a variety of financial services, but as with Dolev’s vision, almost every bullish SQ thesis includes its star offering – the peer-to-peer Cash app. After a “detailed analysis” of potential Cash App products, including tax authorities, insurance, and equity loans, Dolev believes there is a clear runway for the app’s current average revenue per user (ARPU) of $40-50 to reach an ARPU between $150-. 200. This is 3-5x higher than the current level.

Even then, for some context, that figure is well below that of consumer banking giants JPM, WFC and Charles Schwab, where Dolev estimates ARPUs to be somewhere between $400 and $700.

Dolev also believes that the US bank account TAM (total addressable market) contains 400 to 500 million accounts. Since Square currently has 30-40 million active users, this potential user base represents more than a tenfold increase from Cash App’s current active users.

What’s more, with the potential benefit to ARPU and users, Dolev believes Cash App’s gross profit could grow 4x to 8x in the coming years to reach a “medium-term gross profit potential” of approximately $12 billion. The 1Q21 gross profit run rate was ~$2 billion.

So excellent for Square, but what are the implications for investors? Dolev reiterated a buy recommendation for SQ stocks and maintains a price target of $380. Should his premise come true, a potential advantage of ~54% could be at play. (To view Dolev’s record, click here)

The Street’s overall objective is more modest; At $284.11, the average price target suggests a 12-month gain of ~15%. Looking at the consensus breakdown, the analysts rate this stock as an average buy, based on 16 buys, 4 held and 1 sale. (See Square stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are those of the featured analyst only. The content is for informational purposes only. It is very important to do your own analysis before making any investment.