Square, Inc. hitting support of a long-term moving average

Online payment solution provider Square, Inc (NYSE: SQ) has pulled back over the last four or five weeks and the stock gapped lower after its most recent earnings report. The company beat on both the top and bottom line, but investors were disappointed with the forecast.

The stock gapped sharply lower after the earnings report and it continued down for a few weeks after the report. Eventually the drop would reach 25%. The stock then attempted to rebound, but it pulled back again as the overall market was hit with some selling. The stock has since bounced back a little. What jumped out at me was how the stock pulled back to the $60.50 area both times at the lows in August. This suggests that we could be looking at a double-bottom formation.

If we look at the weekly chart for Square we see that the stock is sitting just above the 104-week moving average. I know the 104-week may be a little unconventional, but it represents two years worth of data. The moving average is currently at $60.80 and could be providing support.

The weekly stochastic readings are in oversold territory for only the fourth time in the last three and a half years thanks to the recent selling. In the three previous instances where the stock has been in oversold territory, it has been a pretty good entry point for a bullish trade.

Looking at the Tickeron Technical Analysis Overview we see that the RSI Indicator points to a transition from a Downtrend to an Uptrend -- in cases where SQ's RSI indicator exited the oversold zone, 7 of 10 resulted in an increase in price. Tickeron's analysis proposes that the odds of a continued upward trend are 70%. In this instance we are looking at the daily RSI indicator.

Also from the overview, the Moving Average Convergence Divergence (MACD) just turned positive. Considering data from situations where Square's MACD histogram became positive, in 22 of 26 cases, the price rose further within the following month. The odds of a continued upward trend are 85%.

Turning our attention to the fundamental analysis, Square has seen incredible earnings growth over the last three years with the average annual rate of 143%. In the most recent quarter, earnings were up by 62%. Analysts expect earnings for 2019 to increase by 64% overall.

Sales have grown at a tremendous rate as well, but not as fast as earnings. The average annual growth rate has been 38% over the last three years and the most recent quarterly report showed growth of 44%.

The return on equity is solid at 23.5%, but the company’s profit margin is a little low at 6.9%.

One area of concern is the Tickeron Valuation Rating of 90. This indicates that the company is significantly overvalued in the industry. A rating of 1 points to the most undervalued stocks, while a rating of 100 points to the most overvalued stocks. This rating compares market capitalization estimated by our proprietary formula with the current market capitalization.

Looking at the sentiment indicators for Square, analysts are less bullish toward the company than the average stock while short sellers are somewhat neutral on the stock. There are 36 analysts following the stock at this time with 14 “buy” ratings, 18 “hold” ratings, and four “sell” ratings. The buy percentage is at 38.9% and that is well below the average buy percentage.

The short interest ratio is at 3.2 currently and that reading falls in the average range.

The overall picture is pretty good for Square. The fundamentals are good and the technical picture looks like the stock might be finding its footing. The sentiment is slightly pessimistic thanks to the low analysts’ ratings and that could help the stock in the long run.