Should I Buy Square Stock? (NYSE: SQ)

Square Inc. (NYSE: SQ) stock hits the market on Thursday, Nov. 19, in one of the most anticipated tech IPOs of the year.

As the company prepares to go public, investors are wondering, "Should I buy Square stock?"

Here's everything investors need to know about the Square IPO and Square stock...

A Comprehensive Guide to the Square IPO

squareThe Square IPO price range is between $11 and $13 a share. The company will announce the final price after the closing bell on Wednesday, Nov. 18. Square will sell 27 million shares and plans to raise $324 million.

Following the deal, Square will command a $4.2 billion valuation. Although that's much lower than the $6 billion valuation it received during its last round of funding, it's still higher than other recent tech IPOs. The Square IPO valuation beats Etsy Inc.'s (Nasdaq: ETSY) $1.8 billion and GoDaddy Inc.'s (NYSE: GDDY) $3 billion.

Square is a tech startup founded in 2009 by Jack Dorsey and Jim McKelvey. The company provides a mobile payment service for phones and tablets. Its primary product is the Square Reader software, which plugs into a standard headset jack and lets people take credit and debit card payments. Each Reader costs about $10.

The Square IPO comes less than two months after CEO Jack Dorsey became permanent CEO of Twitter Inc. (NYSE: TWTR). Dorsey will be dividing his time and attention between the two tech companies. His dual leadership has left investors wondering if he'll be able to manage two publicly traded companies.

In fact, it was listed as a risk in the Square IPO filing...

"This may at times adversely affect [Dorsey's] ability to devote time, attention, and effort to Square," the filing said.

And that's not the only risk facing Square stock. The company is also not profitable.

11 10 15 should i buy square stockDuring the first half of 2015, Square posted $560.6 million in revenue, up 51% from the same period last year. About 11% of this year's sales have come from its partnership with Starbucks Corp. (Nasdaq: SBUX), which started selling Square Readers at all U.S. locations in 2013.

However, Square has actually lost $71 million since the partnership started. The firm is already in a $77.6 million hole this year and stated it "may not achieve or maintain profitability" in the IPO filing.

Another challenge the company faces is the volatile IPO market. There have been only 18 tech IPOs this year. That's the lowest number of tech deals since 2008. According to Renaissance Capital, a manager of IPO-focused ETFs, all 2015 IPOs have seen an average decline of 2.2%.

But as the first exciting tech IPO in months, investors keep asking, "Should I buy Square stock as a long-term investment?"

Here's how you can play SQ stock after it starts trading next week...

Should I Buy Square Stock After the IPO?

The biggest reason why you shouldn't buy Square stock is because these tech deals are often fueled by hype rather than facts. Many investors dump money into unprofitable firms like Square without so much as glancing at the financials.

"Too many investors hear of a 'hot IPO' and try to get in on the action without doing any homework at all," said Money Morning Defense & Tech Specialist Michael A. Robinson. "That's a recipe for a hefty loss."

A perfect example is the Etsy IPO. The online marketplace for handmade goods went public on April 16 and raised $267 million. ETSY stock popped 87.5% on its first day and was one of the most successful tech IPOs of the year.

Since then, the stock has cratered 70.7%. It's considered one of the worst IPOs of 2015.

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The IPO market in general is dangerous for retail investors. That's because IPOs only benefit institutional investors willing to buy thousands of shares of a stock before it debuts. These Wall Street "VIPs" bank triple-digit profits on the first day of trading, which teases retail investors into thinking they can do the same.

But the stock price becomes inflated by the time we're able to buy into the company. When the price settles down after the initial frenzy, retail investors who got in late are looking at a loss. This disadvantage can cause huge losses for traders like us who aren't in the Wall Street VIP club.

The Bottom Line: As Square prepares to hit the market, investors are wondering if Square stock is a strong investment. New tech stocks seem exciting because they see huge gains on the first day - but don't give in to the hype. We advise waiting for at least three earnings reports to come out in order to see if the company is becoming profitable.

We will be providing coverage of the Square IPO leading up to its first day of trading. Follow us on Twitter for all of the biggest news updates.

Square Isn't the Only Big IPO Next Week... Match Group, which owns dating services Match.com and Tinder, is also set to go public on Nov. 19. The deal is one of the most highly anticipated IPOs of the quarter. That's because Match Group boasts one quality that's uncommon among tech IPOs...