Digital payment provider Square Inc is one stock to watch as the financial technology (fintech) space continues to grow at a rapid pace. It’s also the top holding in the Global X FinTech ETF (FINX).

“Online payment provider Square Inc. has been a stock to watch over the past five years,” a Schaeffer’s Investment Research article noted. “The equity has dominated the charts since its 2015 initial public offering (IPO), and is now up nearly 1,700%. This surge has only gotten more impressive in 2020, with shares up roughly 250%. There is still plenty of pent-up pessimism surrounding SQ, however, indicating the equity still has room to run — the perfect pick for options bulls.”

FINX seeks to provide investment results that correspond to the Indxx Global Fintech Thematic Index. The index is designed to provide exposure to exchange-listed companies in developed markets that provide financial technology products and services, including companies involved in mobile payments, peer-to-peer (P2P) and marketplace lending, financial analytics software, and alternative currencies, as defined by the index provider.

The fund gives investors exposure to:

  • High Growth Potential: FINX enables investors to access high growth potential through companies that are applying technological innovations to disrupt and improve delivery of financial services.
  • An Unconstrained Approach: FINX’s composition transcends classic sector, industry, and geographic classifications by tracking an emerging theme.
  • ETF Efficiency: In a single trade, FINX delivers access to dozens of companies with high exposure to the FinTech theme.

FINX is up almost 50% within the last year:

FINX Chart

Square Will Run Higher if Short Interest Unravels

Square, which comprises about 8% of FINX, is up over 200% the past year. As such, short interest is keeping bearish traders around, but if the stock price keeps pushing higher, the floodgates could open even wider.

“Short interest is still inching higher, and now makes up almost 8% of SQ’s available float, or nearly three days’ worth of pent-up buying power,” the Schaeffer’s Research article added. “Should some of this positive price action begin to spook bulls, an unwinding of shorts could put additional wind at the equity’s back.”

“An unraveling of bearish sentiment among the brokerage bunch could give SQ a boost, too,” the article said further. “The stock sports a surprising number of ‘hold’ or worse ratings, while 19 of the 34 analysts in coverage call Square stock a ‘buy’ or better. Adding to this, the 12-month consensus price target of $197.01 is a 10% discount to current levels, which might inspire some of these analysts to lift their estimates soon.”

SQ Chart

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