Shares of financial technology innovator Square Inc. (SQ), led by legendary founder Jack Dorsey, have long been a darling of investors but have recently fallen out of favor. Up more than 600% in just five years, the stock has recently tumbled nearly 13% from a record-high reached at the end of September.

The sharp decline comes amid skepticism over the company’s recent launch of Installments, a new product that will allow consumers to obtain credit from Square. While not all analysts are bearish, BTIG’s Mark Palmer sees the latest move exacerbating “Square’s overlooked credit risk,” which adds to his negative outlook that he has held at least since the end of last November in the form of a sell rating on the stock and $30 price target, according to Barron’s.

To add to the bad news, the company announced that chief financial officer Sarah Friar will step down to take over as CEO of Nextdoor.

A Bear’s View: BTIG

 Stock  Price  Price Target  Downside
 Square  $86.17  $30  - 65%

Source: Barron’s, 4pm EST 10/9

Why It Matters to Investors

The new lending option provides anywhere from $250 to $10,000 worth of loans to consumers deemed creditworthy by Square’s proprietary algorithms. The increased purchasing power is a bonus for both consumers and businesses using Square’s platform, as consumers now have greater means to purchase bigger-ticket items while businesses are all-too happy to sell them. However, the new purchasing power is derived not from cold-hard already earned cash, but from credit based on promises of future ability and willingness to pay. That is why some analysts like Palmer are skeptical. (To read more, see: Square Moves into Overbought Territory.)

Palmer has long been concerned with Square Capital, Square’s financing wing that had been solely focused on lending to businesses. Adding the new lending option to consumers adds to the fintech firm’s credit risk, which makes it more vulnerable in a downturn. Palmer wrote, “The company’s increasing dependence on the extension of credit to its customers to spur its growth has made its business model increasingly vulnerable to volatility in the credit markets,” according to Barron’s.

With interest rates currently on the rise, consumers and businesses alike will be deterred from using credit while at the same time finding it harder to be approved by lending agencies. In the current interest-rate climate, this means that Square may not be able to depend much on lending-derived growth, but it could also put the company at risk if rising rates translate into mounting defaults.

A Bull’s View: Buckingham

 Stock  Price  Price Target  Upside
 Square  $86.17  $105  + 22%

Source: Barron’s, 4pm EST 10/9

But not all are as skeptical. Palmer’s price target is the lowest listed by FactSet and is just one of the four analysts of the 37 in total who cover Square with a sell rating on the stock. Buckingham Research analyst Chris Brendler sees the new consumer-lending product as a positive factor that adds to the company’s growth potential in its high-margin services. He holds a buy rating on the stock and a $105 price target. (To read more, see: Square’s Stock May Rebound by 8% Short Term.)

Looking Ahead

Assuming the Fed continues its path of monetary tightening, investors will need to keep their eyes on the pace of interest rate rises and how they affect credit markets in general, as well as their effect on private sector defaults. As long as credit continues to grow and defaults are kept to a minimum, Square will benefit from a new growing revenue stream. But if credit slows down and defaults rise, Square may find itself with a balance sheet full of nonperforming loans, an undesirable situation that every financial firm hopes to avoid.