Technical Analysis
A closer look at SQ’s chart reveals several bullish indicators:
- Breakout and Retest of Support. After breaking above the $84 resistance area in November, SQ has since come back to retest this level as support.
- Strong Risk/Reward Setup. The successful retest suggests a favorable risk/reward, where the downside risk is far more limited than the upside potential to our upside target of $150.
FIGURE 1. SQ STOCK DAILY CHART. The stock is retesting its $84 area as support.Chart source: StockCharts.com. For educational purposes.
Fundamental Analysis
From a fundamental perspective, SQ’s outlook remains promising:
- Attractive Valuation. Despite Block’s strong growth prospects, the company is currently trading at a 30% discount relative to its peers.
- Robust Growth Metrics. SQ’s expected 44% earnings per share (EPS) growth is nearly three times higher than its peers’ 13%, highlighting the company’s potential for earnings expansion. Projected 11% revenue growth outstrips the industry median of 7%, confirming the company’s ability to expand its top line.
- Recent Earnings Insights. Block’s Q3 2024 results showed robust growth in gross profit and a significant turnaround in net income, fueled by the strength of its Cash App and Square ecosystems. While there were some concerns around revenue shortfalls and ongoing regulatory scrutiny of Cash App, the company remains optimistic about continued margin expansion into 2025, forecasting at least 15% overall gross profit growth and new initiatives to drive further gains.
These fundamentals suggest that SQ is well-positioned to capitalize on the continued rise of digital payments, offering investors a potentially rewarding opportunity at current valuations.
Options Strategy
To leverage SQ’s bullish outlook, the OptionsPlay Strategy Center suggests selling the Feb 14 $86/80 Bull Put Spread @ $2.30 Credit.
This entails the following:
- Sell: February 14, 2025, $86 Put at $4.60
- Buy: February 14, 2025, $80 Put at $2.30
- Net Credit: $2.30 per share ($230 total per contract)
FIGURE 2. DETAILS OF A PUT VERTICAL SPREAD IN SQ STOCK.
Trade Details
- Maximum Potential Reward: $230
- Maximum Potential Risk: $370
- Breakeven Point: $83.70 (strike of the sold put minus the net credit per share)
- Probability of Profit: ~56.46% (if SQ closes above $83.70 by February 14, 2025)
By selling a higher strike put and buying a lower strike put, you collect a premium upfront and benefit if SQ stays above the breakeven price at expiration. This strategy offers a balanced approach to potential upside while containing risk.
Unlock Real-Time Trade Ideas With OptionsPlay Strategy Center
This bullish setup in SQ was identified almost instantly using the OptionsPlay Strategy Center at StockCharts.com. By running a Bullish Trend Following scan, the platform highlighted SQ and structured the optimal options trade without the need for extensive research or guesswork.
FIGURE 3. THE BULLISH TREND FOLLOWING SCAN HIGHLIGHTED SQ AS A POTENTIAL OPTIONS TRADING CANDIDATE.
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