Summary:

  • Square (SQ) soared 6% on Tuesday, after Raymond James upgraded the stock.
  • However, we remain cautious on the stock due in part to the cyclical patterns and its valuation.

Raymond James analyst John Davis today changed his analysis for the stock from Underperform to Market Perform. He made his previously bearish perspective public earlier this year, but now believes that his call has played out.

Davis explained that, “We had concerns that the magnitude of the top-line beats would likely wane, and the deceleration in 2Q19 organic growth could catch some investors by surprise, However, the negative catalysts have mostly played out and the stock has lagged peers.”

Our analysis is based on the market cycles for SQ. The stock is in the rising phase of its current cycle, with a base having form. This improvement suggests the stock will rise to resistance between $78 and $82,  which could cause it to stall. Additionally, we see headwinds, as this is a stock with extremely high valuation, with a P/E over 100

For more from Slim, or to learn about cycle analysis, check out the askSlim Market Week show every Friday on our YouTube channel