Square at risk due to squared valuation multiple

Risk/Reward Rating: Negative

The market value of Square is extraordinary compared to its underlying size and profitability. Financial services, payment processing, and fintech are some of the most competitive industries in the world today and are attracting ever increasing competition from venture capital funding.

It is unlikely that Square can capture abnormal rates of return in such highly competitive markets thus limiting the top end of a realistic valuation multiple. The valuation is extreme from a historical market perspective and using reasonable expectations for the business.