As Square agrees $29 billion Afterpay acquisition, is it time to invest in SQ stock?

Square Inc. (NYSE:SQ) announced its most recent quarterly results on Monday, beating analyst expectations on earnings. In addition. Square also announced a $29 billion deal to buy Afterpay in an all-stock purchase. The SQ stock price rallied more than 10% following the announcements.

Analysts think Square’s Afterpay purchase could provide intense competition to PayPal. The Australia-based payments platform challenges PayPal’s “buy now, pay later” feature. As a result, it could give Square the competitive edge it needs to battle PayPal in the global online payments marketplace.

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In a note to clients, Truist analyst Andrew Jeffrey wrote:

At first blush, we contend acquiring Afterpay is a ‘proof of concept’ moment for BNPL, at once validating the industry and creating a formidable new competitor for [Affirm, PayPal, and Klarna].

Why buy Square shares in August 2021?

The SQ stock trades at a steep valuation of about 406.01 P/E. The forwards P/E ratio also seems relatively high at 117.46, making the stock less attractive to value investors. However, although analysts expect earnings to fall by 45% this year, Square’s EPS will grow at an average of about 54.48% annually for the next five years, making it a perfect target for growth investors.

Square posted non-GAAP earnings per share of $0.66, beating analyst expectations by $0.35. The GAAP EPS of $0.40 topped expectations by a whopping $0.45, while revenue of $4.68 billion came short of expectations by $370 million despite growing 143.8% Y/Y.

Square seems like a high-growth stock trading at a steep valuation multiple. Therefore, value investors may opt to look elsewhere for opportunities, while growth investors will look to add to their portfolios. 

Technical overview: Square stock price predictions for Q3.2021

Technically, Square shares appear to be trading within an ascending channel formation in the daily chart. The stock has recently bounced back to surge closer to overbought conditions in the 14-day RSI. Therefore, the SQ share price could decline in the short term before resuming the rally.

Investors can target pullback profits at approximately $253.56 or lower at $231.42. The resistance levels are $300.99 and $320.75.

Bottom line: the case for selling Square shares now

Although Square smashed analyst expectations on earnings, the stock seems steeply-priced, making it expensive for value investors. Therefore, it could be opportunistic to wat for the stock price to pull back before buying, short to benefit from the downward movement.

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