Is Block Stock a Buy or Sell?

Block, Inc. (NYSE:SQ), often recognized as Square, has had a rather roller-coaster ride in recent years with various bumps in the road that have seriously hurt long-term shareholders.

At one point, the company that created the Square and Cash App was considered one of the leading global financial technology firms but sliding revenues and profits have dampened investor sentiment.

Management’s aggressive approach to growth, particularly as it relates to acquisitions, took a toll on the company’s financial health.

As the financials started to look more ugly, it triggered a share price plummet to near 5-year lows. Indeed, SQ stock has declined by more than 75% over the past three years, yet still trades at a whopping earnings multiple of 65x.

This year hasn’t fared much better for shareholders with the stock flat on the year, missing out on a massive rally in the S&P 500.

Block’s response to the crisis was to restructure and cut costs. As a result, Block is ramping up efforts to operate profitably and re-gain a leading position in the fintech industry. So what does it all boil down to for the stock, is it a buy or sell? 

Simply Checkouts and Crypto Make Block a Winner

In a nutshell, Square helps businesses to simplify how they take payments. 

One of the innovations integrated into Square is improved point-of-sale (POS) systems that are built end-to-end so that merchants can easily process payments across multiple touch points.

The user-friendly system comes with features such as inventory management, customer relationship management, and data analytics to help businesses make smarter decisions.

Square also offers more contactless payment options called NFC (Near Field Communication) transactions where buyers use mobile wallets such as Apple Pay.

Recently, Cash App announced its integration with Google Play to give consumers a preferred alternative payment option when checking out on their Android smartphones or tablets. This partnership is designed to engage a broad range of consumers, particularly in the gaming space.

Buy Now Pay Later, which was made possible following the acquisition of Afterpay, was a big growth play to allow buyers make payments in installments. 

One study has claimed that the majority of Americans experience money stress so BNPL was viewed as a useful way to ease financial burdens and was considered by 4 in 5 users as an effective solution to alleviating financial stress, especially among Millennials and Gen Zs.

Block also has a presence in the crypto space and has been able to grow in this arena thanks to Cash App, which offers Bitcoin to be bought, sold, and stored.

Is Block Financially Strong?

Recent quarters have shown signs of improvement. The company achieved 24 million in Cash App card monthly actives in the most recent quarter, which increased 13% year over year.

In the second quarter of 2024, the company’s gross profit increased 20% from the year-ago quarter to $2.23 billion.

Square generated a gross profit of $923 million, which is an increase of 15% year over year, and Cash App generated a gross profit of $1.30 billion, up 23% year over year. Total net revenues came in at $6.16 billion in the quarter, up 11% year over year.

Operating income was $307 million compared to negative $132 million in the year-ago quarter, while adjusted operating income was $399 million versus $25 million.

Net income came in at $195 million, which is substantially higher than the prior-year quarter figure of negative $102 million. Adjusted EBITDA was $759 million, up 98% year over year.

The company’s turnaround initiative includes its cost-cutting strategy of implementing a cap on the headcount at 12,000 as it optimizes its resources. These should be a boon for shareholders over time as the effects trickle through.

Management is also focusing on creating a diversified audience that increases the total addressable market. It has worked on restructuring Afterpay, which has struggled significantly, and built a more integrated relationship between Square and Cash App to enhance customers’ experiences.

Management is forecasting Cash App to deliver faster growth than Square this year and has outlined a growth strategy for its Cash App to capture the share of households with up to $150,000 yearly income in the United States. It believes Square’s growth will be attributed to integrated payments and banking.

Is Block Stock a Buy or Sell?

The consensus among analysts is that Block stock is a buy with upside opportunity to $86 per share.

And even though the PE multiple is pretty high, it is low relative to forecasted earnings growth of an astonishing 246% annually over the next 5 years.

Generating $23 billion in sales and over $650 million in profits annually, Block is starting to look like a really interesting stock now. 

Block is an especially attractive investment opportunity for those interested in fintech stocks and or crypto space.

Though the company has experienced its fair share of challenges in recent years, cost-cutting measures are likely to lead to a boost in profits that Wall Street will reward sooner than later.

Technically, the stock appears to have formed a multi-year base also and has the potential to rebound strongly in coming years.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.