Buying Square stock is like buying JP Morgan in 1871: analyst

Now could be a once in a lifetime opportunity to buy Square stock (SQ) as it transforms into a financial services powerhouse, argues Muzuho analyst Dan Dolev.

“We believe Cash App may be en route to becoming the ultimate neo-bank and the money center bank of the future. This could make buying SQ analogous to buying J.P. Morgan in 1871,” Dolev wrote in a new research note to clients.

Dolev reiterated his Buy rating and $380 price target on Square. The company’s stock currently trades at $238, up about 8% on the year, according to Yahoo Finance Plus data.

At the heart of Dolev’s call is Square evolving into the bank of the future via its Cash App, one that essentially becomes the financial hub for consumers. Currently, the Cash App offers payment services, stock trading and the ability to buy bitcoin.

“We view Cash App as the ultimate challenger bank. Our detailed build of potential products shows a clear path from Cash App’s current $40-50 average revenue per user (ARPU) to $150-200 over the coming years by adding products that range from tax services, to insurance, to home equity lending” Dolev said.

Sign with logo at the headquarters of mobile payment company Square in the South of Market (SoMa) neighborhood of San Francisco, California, October 13, 2017. SoMa is known for having one of the highest concentrations of technology companies and startups of any region worldwide. (Photo by Smith Collection/Gado/Getty Images)

Sign with logo at the headquarters of mobile payment company Square in the South of Market (SoMa) neighborhood of San Francisco, California, October 13, 2017. SoMa is known for having one of the highest concentrations of technology companies and startups of any region worldwide. (Photo by Smith Collection/Gado/Getty Images)

Dolev expects Square to add products that range from tax services, to insurance, to home equity lending on the Cash App. In turn, the Cash App could turn into a true money-maker for Square…no pun intended.

Continued Dolev, “We believe that with 30 [million]-40 million active users, Cash App currently taps less than 10% of its potential user base. We estimate that the U.S. bank account TAM [total addressable market] is 400 [million]-500 million accounts. This implies more than 10x potential upside to its user base. Conservatively assuming Square reaches 15% penetration of the total U.S. bank account TAM (~70 million active users, up from 36 million in December 2020), coupled with ARPU [average revenue per user] of $175 (midpoint of $150-200), points to nearly $12 billion in medium term gross profit potential. This is ~6x above Cash App’s 1Q21 gross profit run rate of ~$2 billion.”

Programming note: Dolev will be on Yahoo Finance Live at 9:00 a.m. today to discuss his big call on Square.

Brian Sozzi is an editor-at-large and anchor at Yahoo Finance. Follow Sozzi on Twitter @BrianSozzi and on LinkedIn.

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