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1 Reason To Avoid Square

Over the last couple months, I’ve shown you stocks to avoid…

Stocks to consider buying…

And some of the best stocks related to the coming Internet of Things…  Which you can find linked further below.

All these recommendations are to help you either avoid pain and terrible stocks.  Or to help you find potentially great stocks to invest in during this pandemic.

Doing both helps you earn higher than average investment returns and build wealth.

There are few safe places to invest your capital today. And this number grows smaller every day this crisis lasts.

The key to continue compounding your capital is to keep investing well over time… Combine this with dividends and you’re well on your way to building a retirement account you can live off.

And this is a huge part of things.

But another huge part of this is also losing as little capital as possible.

The fewer investment losses you have the more capital you keep. And the more capital you keep the faster you can invest well and grow wealth.

But most only think of investing well. 

Today, I want to show you 1 Reason To Avoid Square so you can continue building your wealth safely.

1 Reason To Avoid Square – Even After Its 1381% Rise

It’s Enormously Overvalued

Square provides on the go payment solutions for businesses via its app… Think of vendors, food trucks, and other people you’ve paid when they can swipe your cards on their phones.

Due to the rapid increase in these kinds of on the go payment solutions in the last decade its revenues exploded…  From $203 million in 2012 to $5.9 billion in the last twelve months.

This is an increase of 28.1X in eight years.

Which led to huge increases in profits in this time.

Its net income rose from negative $85 million in 2012 to positive $303 million in the last 12 months.

This fantastic growth in revenues and profits helped skyrocket Square shares in this time.

From $12.85 per share the day it IPO’d on November 19th, 2015 to $190.35 per share as of this writing.

This is an increase of 13.8X or 1381%.

You’re doing well if you earn 10% investment returns per year on the stocks you own.  Square produced investment returns of 138.1% per year on average since its IPO.

Its growth should continue as more businesses work digitally during and after this crisis.  Which is illustrated with Squares continued growth in revenues, profits, and cash flows even during this pandemic.

But I don’t see this rapid growth in share price continuing due to its massive overvaluation.

Its P/E is 288.1.

Its current P/CF is 599.9.

And its current forward P/E is 156.3.

I look to buy companies with valuations below 20 on all these metrics to consider the company undervalued or at worst fairly valued…

Square crushes this threshold.

Why below 20?

Because that means the company is at worst fairly valued… And if its significantly under 20 that means the company is undervalued.

When a stock is fairly valued or undervalued it gives you more margin of safety in investing terms.

This means you have better chances of earning higher returns owning its stock over time.  These combined make the stock a less risky investment.

With Square stock being so overvalued it means there is no margin of safety… That you have a far lower likelihood of making money owning its stock over time.  And these make the stock riskier.

Does this mean I think Square stock will crash and burn?

No.  I expect it to continue performing well… But not as well as it did in the past due to its large valuation.

For the reason of its overvaluation I recommend you avoid its stock… There are safer, cheaper, and higher return stocks you can buy now.

Use the following links to some of our recent articles to see some of these stocks. 

Disclosure – Jason Rivera is a 13+ year veteran value investor who now spends much of his time helping other investors earn higher than average investment returns safely. He does not have any holdings in any securities mentioned above and the article expresses his own opinions. He has no business relationship with any company mentioned above.

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