A year-to-date (YTD) gain of roughly 37% for shares of Square, Inc. (SQ) has institutional buying written all over it. In fact, the stock's institutional ownership rate sits at 75% and will likely grow, as the company has made investments in bitcoin transactions and peer-to-peer (P2P) payments. But you don't need to know the fundamental story because the main factor that drives shares is simply supply and demand – and Square stock has been in demand. Large institutional players have been in accumulation mode as the company continues to outperform expectations. Betting on leading stocks with great fundamentals and increasing institutional activity can be a smart strategy for long-term shareholders.

Square is becoming a leader in the payments space, and the growth aspects of the sector have continued to improve – thus keeping institutions invested. One need only to look at historical charts of Visa Inc. (V) and Mastercard Incorporated (MA) to see the potential upside that Square stock could achieve. This makes a very compelling case for long-term bullish investors. In the perspective of Macro Analytics for Professionals (MAP), the strongest indicator of positive price momentum is obtained by measuring potential institutional accumulation, and since June 2017, Square stock has logged 30 of these rare signals. This indicates that demand for the shares is strong.

In the chart below, Square stock hit a new 52-week high accompanied by institutional accumulation on big volume.


Courtesy of TradingView

MAP's process focuses on identifying companies with healthy fundamentals accompanied by outsized, unusual institutional activity to try and measure potential accumulation/distribution at the single-stock level. By studying these data points, we can hypothesize which equities institutions are trafficking in and marry this information with fundamentally sound companies. We want the odds on our side when looking for the highest-quality stocks.

When deciding on the strongest candidate for long-term growth, we consider many technical areas important to success. A few of those factors for Square are as follows:

  • YTD outperformance vs. overall market: +35.6% vs. SPDR S&P 500 ETF (SPY)
  • YTD outperformance vs. sector: +31.29% vs. Technology Select Sector SPDR ETF (XLK)
  • Unusual institutional activity (accumulation signals)

On top of a great technical picture, one should also look under the hood to see if the fundamental picture supports a long-term investment. As you can see, Square is growing rapidly:

  • One-year EPS growth rate: +67%
  • One-year sales growth rate: +29%
  • Three-year sales growth rate: +38%

Square checks the box on strong technicals and fundamentals while continuing to gain institutional momentum. We believe that Square has the growth and institutional support that are attractive for those looking for stock appreciation in a hot sector. Square stock has been gaining rapidly over the past year, with heavy counts of accumulation signals accompanying the move. All of this points to further bullish action for the stock.

The Bottom Line

Square represents a potential buying opportunity for the long-term investor. Given the continuous potential institutional accumulation signals, this stock could be worthy of a spot in a growth portfolio.

To learn more about MAP’s institutional signals please visit our "About Us" page.

Disclosure: The author holds a long position in SQ at the time of publication.

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