The recent slump in shares of Square has professional money managers looking elsewhere in the payments space for profit.
Shares of the online payment company fell sharply ahead of its earnings report on Tuesday, with fellow industry player PayPal’s stock following suit. The two giants, which bought into bitcoin last year, have come under pressure alongside the cryptocurrency.
Square declined further in extended trading following its report — down more than 4% in Wednesday’s premarket — even though the results beat analysts’ expectations. It announced an additional $170 million bitcoin purchase as part of the release.
Square and PayPal shares are down roughly 11.5% and 14% in the last week, respectively, while legacy payment stocks Visa and Mastercard are up about 2% and 2.5%.
Mark Tepper, president and CEO of Strategic Wealth Partners, chalked it all up to a larger stock market rotation.
“A lot of the high-multiple, high-momentum stocks, they’re under pressure. Boring stocks are suddenly the flavor of the month,” he told CNBC’s “Trading Nation” on Tuesday. “You’ve got interest rates going up, inflation is being talked about, so all that stuff is really crushing these high-multiple stocks.”
While he loved PayPal and Square’s disruptive attributes and said “cashless and contactless is the way to go,” Tepper preferred Visa’s stock for the time being.
“Of all the payment stocks out there, I think Visa’s the best play right now because if this reopening of our economy is real, Visa’s going to benefit the most,” he said. “I think they have the biggest catalyst ahead of them.”
PayPal’s catalyst could be the very thing dragging it down at the moment, said Todd Gordon, founder of TradingAnalysis.com.
“You’ll actually see a pretty good correlation between bitcoin and PayPal on the charts,” he said in the same interview. “The two are definitely related.”
Gordon said he bought bitcoin via PayPal’s platform before going on “Trading Nation” because even though its stock is expensive at its current multiple, its user growth and profit margins stand out against Square’s.
“The sell-off from 310 looks a little scary, but it’s only 17%, which is similar to the last correction at the end of last year at 16%,” he said, citing a chart. “Above 250 and the uptrend’s intact.”
PayPal shares ended Tuesday’s trading down over 3% at $265 a share. It was up more than 1% in Wednesday’s premarket, trading at $269.50.
Disclosure: Tepper owns shares of Visa.
