One of the surest ways to make money over the long haul is to pinpoint unstoppable trends. One such trend is the ability to buy almost anything with the tap of a smartphone.

The cashless society is rising to new heights once only imagined in science fiction. Mobile devices are becoming the payment system of choice for consumers.

Which brings us to Square (NYSE: SQ), a $31.1 billion market cap technology firm that provides innovative point-of-sale solutions. Square has generated a lot of Wall Street interest lately, as investors seek to profit from rapid technological change in financial services.

Is Square the next big thing? Or has the stock benefited from a lot of unwarranted hoopla? Let’s see if the stock is a good buy in 2019 or just another investment fad.

What Is Square?

Square offers a proprietary point-of-sale system, including software and hardware, that allows sellers to turn mobile and computing devices into payment solutions.

The market for these capabilities have long been necessary. If you’ve ever run your own business, you know that it’s problematic to set up efficient point-of-sale systems. And if you’ve ever engaged in a transaction using Square, you’ve seen that its solutions are easy and seamless.

Square’s hardware allows for magstripe swipes, tap and pay, and chip reading across all the major Europay, MasterCard, and Visa (EMV) chip cards. The hardware also deploys Square Stand, which enables the use of an iPad as a payment terminal, and Square Register that combines the company’s hardware, point-of-sale software, and payments technology.

You’ll see these products used primarily in small businesses, in places like coffee shops, restaurants, antique stores, etc.

Square offers Cash App, which permits customers to electronically send, store, and spend money. The company also offers Caviar, a food ordering platform for restaurants, and Square Capital, which facilitates loans to sellers based on real-time payment and point-of-sale data.

How Has Square Stock Performed?

• Over the past year, SQ shares have gained 50% whereas the S&P 500 has lost 7%.
• Over the past two years, SQ shares have gained 367% whereas the S&P 500 has gained 15%.
• Over the past five years, SQ shares have gained 428% and the S&P 500 has gained 28%.

How Has Square Stock Performed in 2017/2018?

• In 2017, Square shares gained 151% whereas the S&P 500 gained 19%.
• In 2018, Square shares gained 50% whereas the S&P 500 lost 7%.

Who Are Square’s Rivals?

PayPal (NSDQ: PYPL)

With a market cap of $106 billion, PayPal operates a platform that facilitates digital and mobile payments on behalf of consumers and merchants worldwide.

PayPal is the name of the company’s mobile swipe card reader. That product is swipe reader only, though. The company also has a chip card reader.

All of PayPal’s standard cards are accepted and the cost for each swipe is 2.7% of the transaction total, while Square’s fee is 2.75%. Like Square, the PayPal software can turn your iPad into a cash register.

SumUp (private)

German-based SumUp actually designs its own card readers and then produces them in-house. Most of its competitors outsource these engineering tasks. (Leave it to the Germans to emphasize engineering!)

SumUp offers swipe, tap, and chip reading functionalities. Its system also works with a smart phone or tablet and accepts all major credit cards. The transaction fee is 2.65%.

Intuit (NSDQ: INTU)

Intuit (market cap: $55 billion) is diversified with many different products. The firm provides financial management products and services for small businesses, consumers, the self-employed, and accounting professionals.

The company’s GoPayment competes with Square’s offerings. Intuit’s product has been criticized for several reasons. Some users find it buggy, as well as unsuitable for individuals and new businesses.

Those are the three main competitors, but by no means all of them. The e-commerce space is fiercely competitive and new entrants continually spring up.

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Will Square Stock Go Up in 2019 (Should You Buy?)

Square’s products are impressive and they’ve gained a lot of loyal customers. The product has significantly scaled and revenues are booming. Unfortunately, the company can’t seem to turn a profit.

That doesn’t necessarily mean we’re rejecting SQ out of hand as a possible stock to buy.

There are two types of companies that run losses. The first type are companies that are new and still trying to scale. Their future is in doubt. The second type are like this company, which continues to scale and for which a real future appears likely.

Let’s see if there’s any metric by which we might consider this stock undervalued

SQ has a $27.2 billion net-of-net-cash market cap. Trailing 12-month (TTM) net loss was only $2 million.

SQ stock has no price-to-earnings (P/E) multiple since it has no earnings. However, it does have TTM revenues of $3 billion, which means it trades at about 9x revenue.

On the one hand, companies like Netflix (NSDQ: NFLX) that are making very little money yet have a high-flying stock, are trading at 9x revenues. Meanwhile, Microsoft (NSDQ: MSFT) trades at 8x revenues and it’s making a fortune.

How do you evaluate a company like Square that’s growing, has whittled annual losses down to breakeven, and appears ready to start generating a profit, yet on one metric trades at a valuation that’s sky-high?

We don’t like to make investments on faith. Square entails many unknowns. What’s more, a mega-cap rival in e-commerce could easily come along and poach Square’s market share.

Read This Story: Our Amazon Stock Prediction In 2019 (Buy or Sell?)

That said, there’s a school of thought that says Square’s stock will be seen as cheap in retrospect. This video lays out the bull case:

Will Square Go Down in 2019 (Should You Sell?)

If we can’t evaluate a stock by traditional metrics (such the P/E) because it has no earnings, that stock is probably overvalued.

It seems ridiculous Square is valued on a price to revenue ratio that exceeds that of Microsoft, which has been in business for decades, generates billions of dollars in profit and free cash flow every year, and is one of the greatest companies in the world.

Is there a comparison to be made with PayPal and Intuit?

PayPal has a net of cash market cap of $95 billion. On $2.1 billion of TTM net income, it trades at 45x earnings. As mentioned in earlier columns, we give a 10% premium to that number for each of the following: world-class brand name (yes), significant cash hoard (yes), and/or robust free cash flow (no).

Including the valuation bonus, PYPL’s five-year estimate is for 25% growth. It thus trades at a PEG ratio of 1.8. Normally, 1.0 is the highest we go to consider buying a stock. However, if its growth rate exceeds 15%, we permit 2.0.

On a revenue basis, PYPL has $15 billion in TTM revenues. Consequently, the company trades at 6.3x revenues, cheaper than SQ.

Intuit has a net of cash market cap of $54 billion. On $1.25 billion of TTM net income, it trades at 43x earnings. The checklist: world-class brand name (yes), significant cash hoard (no), and/or robust free cash flow (no).

Including the valuation bonus, Intuit’s five-year estimate is for 16% growth. It thus trades at a PEG ratio of 2.7. Too high for us.

On a revenue basis, PYPL has $6.1 billion in TTM revenues, which means the company trades at 9x revenues.

Conclusion: SQ is no more expensive than Intuit but pricier than PayPal.

Overall Square Forecast and Prediction for 2019

What’s our final verdict on Square’s stock?

Investors are enamored with the company. If the company turns a corner and reports a profit, which appears likely, it would serve as a “profit catalyst” that propels the share price higher. Barring any bad news, the stock will probably continue higher this year.

Investors who are interested in getting into the stock should have a higher than average tolerance for risk. But be forewarned: in a broader market selloff, unprofitable and highly valued tech stocks such as Square will fall the fastest and the hardest.