Ignore Trump and Biden; This tech action is a buy no matter who wins
The outcome of the 2020 US presidential election could potentially have a profound effect on many publicly traded companies. The winning candidate has some influence over the number of companies operating nationally as well as their international outlook.
A business on the path to expansion, regardless of the outcome of the election, is Square (SQ -4.12% ). the fintech industry flourished under the Democratic and Republican presidents. Additionally, trends both inside and outside the company are expected to strengthen Square’s actions regardless of the president for the next four years.
Society is increasingly cashless
Square fits perfectly with a trend: the growing cashless society. Whether the public will end up giving up cash altogether is a matter of debate. Nonetheless, an ever-increasing percentage of consumers and businesses are collecting and spending money electronically in increasing amounts.
Square began by playing a central role in this trend. It started by allowing consumers with something to sell to process credit card transactions using their smartphones. This opened up credit card collections to individual businesses and even individuals.
Indeed, the company has used ATMs, direct deposits and credit cards for decades. But Square was the first to develop options to replace and / or combine these elements in a convenient and easy to use way. With the rise of electronic commerce, electronic payment volumes have grown exponentially. Thanks to Square and its peers, credit and debit cards aren’t the only option for electronic payments. With Square’s CashApp, consumers can collect money and pay their bills and daily expenses. CashApp even allowed consumers to receive their stimulus payments from the U.S. government more directly earlier this year.
Square is changing finance
In recent years, Square has significantly expanded its ecosystem. The increased comfort with financial consolidation has made this possible. In 1999, Congress repealed the Glass-Steagall Act, which previously required the separation of commercial and investment banking. Investors should note that this repeal lasted through three different presidents and a financial crisis.
This shifting attitude towards the combination of commercial and investment banking has played Square. In the past, we could turn to a Bank of America for basic banking services and loans. For credit card transactions, consumers may have trusted a company like Visa. Companies would also use a Automatic data processing (ADP) for payroll management and a RCN to collect and manage cash.
Today, Square offers most of these services within a single ecosystem. Earlier this year, it also received approval from the Federal Deposit Insurance Corp. charter a bank. Once that bank is open, individuals or businesses can complete almost any transaction within Square’s ecosystem if they wish.
Few geopolitical concerns for Square’s management
Investors should also remember that Square only has a presence in five countries: Australia, Canada, Japan, United Kingdom, and United States. another. Since Square does not currently have any business in China, Russia, or the Middle East, the company likely won’t have to worry about such tensions, regardless of the president.
The election result is also unlikely to affect its immediate expansion plans. Square bought Verse, a Spain-based start-up, in June, and operates an office in Ireland.
Given that both countries use the euro, this points to possible expansion into the euro area. Such a move, which would take Square to 19 other countries, likely wouldn’t bother President Donald Trump or Democratic presidential candidate Joe Biden.
From an investment perspective, such action will likely bring more years of rapid growth. In the last quarter, Square increased its revenue by 64% year-on-year and its gross margin by 28%. The decline in business due to the coronavirus resulted in a loss of $ 11 million in this quarter. Still, this is unlikely to persist, as analysts forecast year-over-year profit growth of nearly 115% in fiscal 2021.
Given these anticipated profit increases, Square investors are expected to cash in, regardless of who controls the White House on January 20, 2021.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are motley! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.