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Should You Buy Square (SQ) Ahead of Earnings?

As Q3 earnings season starts to wrap up, investors are already starting to reflect on what has been a remarkable stretch of strong reports, especially in the tech sector. However, there are still a few market-moving tech companies left to announce their latest results, including mobile payments giant Square, Inc. SQ.

Square, led by Twitter TWTR CEO Jack Dorsey, is set to release its third-quarter 2017 earnings report after the closing bell on Wednesday. Over the years, the company has pioneered mobile payment solutions and revolutionized operations for countless small and medium-sized businesses. And now, the stock is finally starting to take off.

Shares of Square have skyrocketed more than 170% so far this year, and the stock has emerged as one of Wall Street’s most exciting growth picks. Management has concentrated their efforts on profitability, which has led to an overwhelmingly positive response from investors.

Heading into the report, our consensus estimates are calling for Square to report earnings of 6 cents per share and revenues of $574.3 million. These results would represent year-over-year growth rates of 164% and 31%, respectively.

Square has also put together an impressive earnings surprise streak. In fact, the company has met or surpassed earnings estimates in five consecutive quarters, dating all the way back to just its third reportable quarter as a publicly-traded company. Investors should also note that Square has surpassed our revenue estimates in each of the past two quarters.

But Square is currently trading just below its all-time high of $37.75 per share, so a strong earnings report is likely already priced in. In other words, investors are probably already anticipating an earnings beat, so anyone looking to make an earnings play here should be interested in the company’s chances of pulling this off.

For these questions, we turn to the Zacks Earnings ESP (Expected Surprise Prediction), our proprietary method for identifying companies that are likely to beat. The ESP compares the most recent analyst estimates with our overall consensus figure, which takes the average of every estimate we have seen over time.

This is done because, generally speaking, if an analyst evaluates their earnings estimate right before an earnings release, it means that they have fresh information which could potentially be more accurate than what analysts thought about a company two or three months ago.

With that said, Square’s Most Accurate Estimate—the figure representing the recent estimates—calls for earnings of 5 cents per share, giving the company a negative Earnings ESP of 13.3%. While this doesn’t necessarily tell us anything specifically, we might infer that analyst sentiment has cooled down as we’ve approached Square’s report date, which is certainly not a great sign.

Still, other consensus estimates are calling for strong growth in certain key categories of the upcoming report. In fact, our exclusive non-financial metrics estimate file is calling for gross payment volume (GPV) to surge more than 29.5% to hit $17.1 billion. Last quarter, Square reported GPV growth of 32%, which surpassed our consensus estimate.

As we approach its report date, Square remains a Zacks Rank #2 (Buy). As mentioned, a great report will be necessary if the stock wants to break above its all-time high. Strong GPV results would imply a strong base of sellers, which could be the foundation for another great report from Square.

Make sure to check back here for our full analysis once the company does report tomorrow!

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