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Mobile payment company Square (NYSE: SQ) has been one of the hottest stocks in the market over the past few years. The financial technology firm, which owns the Cash App, saw its stock price rocket 248% in 2020 and since it went public in late 2015 it has posted an annualized return of about 64% per year.
This year, Square is up about 8% as of Sept. 29, trading at around $236 per share. It has had a few negative days of late, due primarily to a snapback among high-flying growth stocks in general as well as certain macro trends. Overall, its growth potential is extremely high due to a variety of factors, including the rise in mobile banking and payments. If you had invested in Square a few years ago when it was trading at under $50 per share, you’d be pretty happy right now, given its rapid rise.
Image source: Square.
For some investors with not a lot of money to invest, it may have even priced itself out of their range. But through fractional shares investing, you can invest in Square for the cost of a penny stock.
Square has been on a meteoric rise
Square launched in 2009 and was largely known for its square-shaped credit card reader that merchants attached to their phones to take card payments. In just 12 years it has morphed into a $100 billion company, and has a range of services for its merchant ecosystem, like payroll services and financing to customers through Square Capital. Earlier this year, it moved into banking, securing an industrial loan bank charter, which allows it to provide loans to small businesses.
In the past few years, Square has been expanding its buyer ecosystem, mainly through its Cash App, which is an app that allows people to send and receive money, like its competitor PayPal Holding‘s Venmo. The Cash App, which currently has more than 70 million users, saw a 94% jump in gross profit in the second quarter year over year to $546 million. Meanwhile, the seller ecosystem products saw a year-over-year gross profit increase of 85% to $585 million. Overall, Square did $1.1 billion in gross profit, up 91% year over year, with net income of $204 million, up from an $11 million loss in the second quarter of 2020.
Square is also expanding both ecosystems with the recent acquisition of Afterpay, a buy now, pay later (BNPL) platform that will be used by merchants to offer those services at checkout and allow consumers to manage their installment payments through the Cash App. This should lead to even greater sales growth for the company over the next few years. The analyst consensus is the stock will surge another 31% over the next 12 months.
Buying fractional shares of Square
Even if Square’s share price, at around $236, is a little out of your price range, know that most brokerages now allow you to invest by dollar amount, in addition to buying shares of stocks. This is called fractional-share investing. So, if you went on Robinhood Markets or Charles Schwab, for example, you could invest any dollar amount you want in a stock like Square.
For example, with fractional shares, you could invest $150 in Square and it would buy you about 63% of one share at its current price. Then you could continue to invest in that stock, say $50 every month, for as long as you like, and it will tell you what fraction of the share, and eventually how many shares, you own each time you invest.
One of the great things about fractional-share investing is that the returns you get match the returns of the entire share. So, if the share price goes up 20% this year, the value of your fractional shares goes up 20% as well.
You could take that $150 and buy 50 shares of a stock that costs $3 per share, but the odds of finding a stock at that price with the growth potential of Square are pretty low. Buying fractional shares of a great stock like Square should certainly be an option to consider.
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Charles Schwab is an advertising partner of The Ascent, a Motley Fool company. Dave Kovaleski has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends PayPal Holdings and Square. The Motley Fool recommends Charles Schwab and recommends the following options: long January 2022 $75 calls on PayPal Holdings. The Motley Fool has a disclosure policy.
