Square traded up more than 1 percent Tuesday after BTIG upgraded the stock from "neutral" to "buy."
BTIG, an equity research firm, cited Square's valuation, and the potential for short-squeeze-related gains, with a new price target of $12 per share. Shares of Square traded around $9.50 Tuesday.
"We believe the stock's risk/reward is favorable at current price levels and that valuation provides a cushion against the impact of the expiration of the company's post-IPO lock-up," the BTIG note said, adding that Square will be a "show me" story. "The share price reaction to positive news is likely to be magnified by the rush by short-sellers to cover."
Analysts at BTIG said Square is an "unwise short position" and pointed to the company is a serious acquisition candidate.
"A takeout at a healthy premium is a real possibility," the BTIG note said.
Square, one of two companies run by Twitter CEO Jack Dorsey, had its lowest trading day ever earlier this month, after reporting a bigger-than-expected first-quarter loss. The stock fell more than 20 percent on May 6.
Shares of Square are down more than 26 percent so far this year, and have shed nearly 20 percent of their value since the company's initial public offering in November.