Why Square Stock just jumped 5%

What happened

Actions of Square (NYSE: SQ) The stock jumped 4.9% on Wednesday afternoon, at 1:40 p.m. EST, after the company said it had reached a “definitive deal” to acquire the Credit Karma Tax unit from the reporting provider. consumer credit Credit Karma.

So what

Square will acquire the free tax filing service and add it to its own subsidiary Cash App in a transaction valued at $ 50 million in cash. In a statement, Square explained that its new acquisition “will expand Cash App’s diverse ecosystem of financial tools – which currently includes peer-to-peer payments, Cash Card, direct deposit, as well as split investing. .. giving customers another way to manage their finances out of pocket. ”

In doing so, Square will also pave the way for Intuit (NASDAQ: INTU) to make its own planned acquisition of the remainder of Credit Karma. The US Department of Justice had delayed this latest acquisition, telling Intuit it could acquire Credit Karma, but only if it had first ceded its tax reporting business.

Now what

This is good news for both companies. But is that good news to justify investors valuing Square at around $ 3.7 billion? more in market cap today than the stock was worth yesterday? All because of a $ 50 million acquisition for the company?

I do not think so. And with Square’s stock now valued at 317 times the trailing profits, I think I’d be more inclined to use the current stock price surge as an opportunity to exit Square’s stock rather than one. buy more.