What happened

Shares of Square (NYSE: SQ) lost more than a quarter of their value on Monday, as store closures related to the COVID-19 coronavirus pandemic sent investors scurrying. The stock closed down 28.6%.

So what

More than 180,000 people have been infected with COVID-19 — the disease caused by the novel coronavirus — and over 7,000 have died. Governments around the world have taken drastic action to combat the disease. In recent days, these measures have included closing many restaurants and other small businesses, which represent a large portion of Square’s customer base.

Square earns a significant amount of its revenue from sales-based fees, and its gross payment volume will no doubt be hurt by these store closures. This will likely place a serious dent in its revenue and profit margins in the coming quarters.

A man with his head down on a table in front of a chart that rises and then falls sharply.

Square’s stock got hammered on Monday after many small businesses were forced to close. Image source: Getty Images.

Now what

A bear-case scenario would include large numbers of small-business bankruptcies in the year ahead, which would likely weigh on Square’s results for several years. The bull case entails a relatively short COVID-19-related shutdown, with pent-up consumer demand leading to a wave of renewed spending once stores reopen. Whether you think Square is a good buy today can be determined by which of those scenarios you believe is more likely.

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Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Square and recommends the following options: short March 2020 $70 puts on Square. The Motley Fool has a disclosure policy.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.



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