Square - up 140% this year - is surging into earnings, and technical analyst says it's still a buy

Square heads into its earnings report Wednesday with some healthy year-to-date gains to its name.

The payments stock has rallied close to 140 percent since the beginning of 2018.

But a rough October lopped off nearly 20 percent from its peak price at the beginning of the month. Its decline looks like a bullish signal to leading technical analyst Craig Johnson.

"I look at this chart, and I would be a buyer of this stock in here," Johnson, chief market technician at Piper Jaffray, said on CNBC's "Trading Nation" on Tuesday. "We've pulled right back to identifiable support at the longer-term uptrend support line and also the rising 40-week moving average, so I like what I'm seeing here technically."

Square retreated to $65 a share twice in October only to bounce back up to $80. Its stock plummeted 26 percent in October, its worst month since May 2016, but has already clawed back 13 percent in gains this month.

While Michael Binger, president of Gradient Investments, sees opportunity in the financial technology space, he is doubtful Square is the right pick.

"We really like this industry, the financial payments and transaction processing area, [but] I wouldn't own Square right now," Binger told "Trading Nation" on Tuesday. "It's not a cheap stock; they've had a couple of really good quarters. The bar is set pretty high right now, and they need to do almost 90 percent year-over-year revenue growth."

Square trades at 113 times forward earnings, making it far more expensive than its peers relative to its earnings power. Competitors such as PayPal trade at a more moderate 31 times forward earnings.

"We think you have better risk-reward in those other companies — PayPal, Visa, Mastercard," added Binger.

PayPal has added 20 percent in 2018, Visa is up 26 percent, and Mastercard has gained 36 percent.

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Trading Nation is a multimedia financial news program that shows investors and traders how to use the news of the day to their advantage. This is where experts from across the financial world – including macro strategists, technical analysts, stock-pickers, and traders who specialize in options, currencies, and fixed income – come together to find the best ways to capitalize on recent developments in the market. Trading Nation: Where headlines become opportunities.

Michael Santoli

Michael Santoli joined CNBC in October 2015 as a Senior Markets Commentator, based at the network's Global Headquarters in Englewood Cliffs, N.J.  Santoli brings his extensive markets expertise to CNBC's Business Day programming, with a regular appearance on CNBC's Closing Bell (M-F, 3PM-5PM ET). In addition, he contributes to CNBC and CNBC PRO, writing regular articles and creating original digital videos.

Previously, Santoli was a Senior Columnist at Yahoo Finance, where he wrote analysis and commentary on the stock market, corporate news and the economy. He also appeared on Yahoo Finance video programs, where he offered insights on the most important business stories of the day, and was a regular contributor to CNBC and other networks.

Follow Michael Santoli on Twitter @michaelsantoli

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