Why Square and Roku are Top Growth Stocks to Own in 2021

Technology companies Roku (ROKU) and Square (SQ) have delivered impressive results so far this year thanks to a pandemic-driven increase in demand for their products and services. But both companies have proven histories of outperforming the broader markets and are on track to deliver market-beating returns in 2021, driven by continued growth in revenues and earnings.

While 2020 has witnessed the deepest global recession since World War Two, courtesy of a novel coronavirus pandemic, the stock markets have been relatively unscathed. Despite the economic weakness, the NASDAQ composite has grown 42.2% year to date, while the Dow Jones Industrial Average hit 30,000 for the first time ever in late November. The impressive performance of these benchmark indices can be attributed in large measure to growth stocks, many of which have outperformed this year. This is evidenced by the SPDR Portfolio S&P 500 Growth ETF’s (SPGY) 31% gain year-to-date.

The pandemic has accelerated the growth of the technology industry. But it should be noted that companies such as Square, Inc. (SQ) and Roku, Inc. (ROKU) have generated  double-digit growth in revenues and earnings in years prior to the pandemic, reflecting their fundamental ability to capitalize on the changing trend.

These businesses are currently leveraging the tech boom to attract more users through various innovative product launches and discounts. Thus, ROKU and SQ have plenty of upside left, we believe, and are likely to experience surging demand for their products and services next year.

Square, Inc. (SQ)

SQ offers payments and point-of-sale solutions to facilitate financial transactions worldwide. It manufactures hardware products such as magstripe readers, chip readers, and contactless readers for near field communication payments. It also operates a developer platform for application programming interfaces and software development kits.

The company raised approximately $983.70 million through convertible notes offering in November. It plans to utilize the proceeds to meet general corporate expenses and fund expansion plans.

SQ launched Square KDS on November 17 to streamline the order processing and management of restaurants worldwide. With restaurant chains struggling to reopen amid the pandemic, the software allows companies to organize and display order tickets seamlessly, thereby minimizing order delivery time. It also launched Square Appoints this month, which allows beauty and wellness businesses to manage their appointments, inventory, and payments more easily.

While these moves bolster SQ’s future growth prospects, the company already has an impressive growth track record. It has gained 523.1% over the past three years, mainly driven by its revenue growth. SQ’s revenue has increased at a CAGR of 55.1% over the past three years, while total assets have risen at a CAGR of 57.3% over this period.

SQ’s total revenue increased 138.6% year-over-year to $3.03 billion in the third quarter ended September 30, 2020. Gross profit rose 58.9% from the year-ago value to $794.46 million, while net income grew 24.2% from the prior-year quarter to $36.52 million. EPS increased 16.7% from the same period last year to $0.07.

SQ’s EPS is expected to rise 1100% in the next quarter (ending March 31, 2021) and 47.4% in fiscal 2021. The company has an impressive earnings surprise history as well; it beat the Street EPS estimates in each of the trailing four quarters. Analysts expect the company’s revenue to rise 112.6% in the next quarter, and 38.5% next year.

SQ has gained more than 613.7% since hitting its 52-week low of $32.33 in March. The company hit its 52-week high of $237.09 yesterday.

How does SQ stack up for the POWR Ratings?

A for Trade Grade

A for Buy & Hold Grade

A for Peer Grade

B for Industry Rank

A for Overall POWR Rating.

The stock is also ranked #1 of 262 stocks in the Financial Services (Enterprise) industry.

Roku, Inc. (ROKU)

ROKU is a TV streaming platform operating in two segments – Platform and Player. Its Roku platform offers ad-supported channels and traditional pay-tv replacement services.

The company offered its Streaming Stick+, Streambar, and Premiere products and services at huge discounts from November 20 - November 30, in its Black Friday sale. The company also offered Roku SE exclusively at Walmart retail chains during this period to bolster its sales during Black Friday.

On December 7, ROKU launched ‘Winter Streamland’ on its channel. The company also partnered with iHeart Radio to offer its popular music stations for free to ROKU users; it partnered also with HBO to offer HBO Max subscription services on the ROKU platform.

ROKU’s net revenue has increased 73% year-over-year to $452 million in the third quarter ended September 30, 2020. This can be attributed to a 78% increase in platform revenues, and a 6.7% rise in active user accounts. Gross profit rose 81% from its year-ago value to $215 million. The company reported EPS of $0.09 for this period, indicating a substantial increase from the year-ago negative values.

ROKU has maintained this impressive growth streak for over three years. The stock has gained 529.9% over this period, driven by its revenue growth. ROKU’s revenue and total assets have increased at CAGRs of 48.3% and 110.5% over the past three years.

Analysts expect ROKU’s EPS to increase 30.8% in the current quarter, and 28.6% next year. Moreover, ROKU beat the Street EPS estimates in three of the trailing four quarters, which is impressive. Its revenue is expected to rise 47% in the current quarter, 42.5% in the next quarter (ending March 31,2021), and 37.9% next year.

ROKU has gained more than 465% since hitting its 52-week low of $58.22 in March. The stock hit its 52-week high of $352.12 yesterday.

It is no surprise that ROKU is rated “Strong Buy” in our POWR Ratings system, with an “A” for Trade Grade, Buy & Hold Grade and Peer Grade, and a “B” for Industry Rank. In the 30-stock Technology – Hardware industry, ROKU is currently ranked #4.

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SQ shares rose $0.87 (+0.37%) in after-hours trading Friday. Year-to-date, SQ has gained 276.36%, versus a 16.35% rise in the benchmark S&P 500 index during the same period.

About the Author: Aditi Ganguly

Aditi is an experienced content developer and financial writer who is passionate about helping investors understand the do’s and don'ts of investing. She has a keen interest in the stock market and has a fundamental approach when analyzing equities.


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