Alongside other high-growth tech stocks, Block (NYSE:XYZ) soared in 2021, eventually reaching an all-time high closing price of $281.81. Since then, however, shares of Block have struggled and left investors who bought at the peak with severe losses.
Now, Block is moving higher again, and the business could be on track for a period of sustained growth ahead. Is it finally time to buy Block stock, or does this long-term problem stock still present too much risk?
Why Is Block Turning Around?
Although Block’s shares have been struggling for several years, the business itself has produced fairly good results. Revenue has grown in all but one of the last 11 quarters, with most of those quarters seeing double-digit growth rates. Block also hit net profitability a couple of years ago, and the last year has seen considerable earnings growth.
Block’s products have also caught on in a massive way, giving the business at least something of a competitive moat. Cash App, for example, was used by over 50 million people in the US in 2024, a number that’s expected to increase to nearly 65 million by 2028.
Square, meanwhile, has become a go-to payment service provider for American small businesses. Afterpay has given the business a strong foothold in the BNPL space, though it still faces strong competition from other major services like Affirm and Klarna.
Although Block has done decently well, it hasn’t been without its challenges. Following Q1 earnings, for instance, the stock fell significantly due primarily to worries about Cash App’s user growth rate and profitability. This sharp selloff, however, hasn’t persisted, and the stock is now up more than 14 percent on a trailing 12-month basis.
Block is still in the relatively early stages of a turnaround strategy focused in part on expanding its consumer lending. Cash App Borrow, a small consumer loan service with an average loan volume of less than $100, was already among Block’s products. Earlier this year, though, the business gained FDIC approval to make the loans directly, rather than partnering with banks. This, alongside other consumer and lending products, may help Block sustain its growth.
Another factor that has helped to reinvigorate Block is its substantial Bitcoin ownership. The business owns over 8,500 Bitcoin and is the 12th-largest publicly traded holder of the cryptocurrency. With Bitcoin prices soaring on support from the Trump administration and ongoing demand from cryptocurrency ETFs, the market value of this stockpile has increased substantially this year.
How Will S&P 500 Inclusion Affect XYZ?
Another extremely important force acting on Block at the moment is the stock’s pending addition to the S&P 500 index. Block will take the place of Hess, an oil business that is being acquired by Chevron.
Current estimates suggest that passive fund managers will have to buy about 101 million shares of XYZ in order to accurately reflect its weight within the index. The announcement that Block would join the S&P 500, made on July 21st, resulted in an extremely rapid 7 percent gain for the shares as investors began buying to take advantage of the expected demand for Block stock.
The shares of XYZ that passive funds will have to buy amount to roughly 11 days’ worth of typical trading volume. As a result, it’s quite possible that there will be sustained upward pressure on the stock in the coming weeks. This volatility, however, is apt to be short-lived and has little to do with the intrinsic value of the business.
Is Block Stock Cheap?
Block trades at 19.0 times earnings, 2.1 times sales and 41.4 times operating cash flow, fairly high for a business in the financial sector, but earnings and revenue growth could justify a bit of a premium if it can maintain them.
Despite the somewhat high price tag, XYZ enjoys a fairly strong buy rating, with 27 analysts rating it a buy, 9 rating it a hold and only 2 rating it as a sell.
The recent increase associated with the news that Block would join the S&P 500, though, has brought XYZ shares a bit above the analyst consensus target price.
The average 12-month price target for the stock is $75.71, a little below the $79.02 the stock now trades for. It’s worth noting that analysts are still updating their targets to reflect the S&P 500 announcement. JPMorgan, for instance, has already raised its price target from $60 to $90 to account for that news.
Is Now the Time to Buy Block?
In the short term, it’s quite likely that XYZ shares will keep moving higher on demand from passive funds and the market’s enthusiasm now that the stock is being added to the S&P 500. Strong buying activity should persist throughout most of the rest of July as these funds add Block. Though the buying could happen very quickly and then taper off, it will likely have a lasting effect on share prices.
The problem, though, is that the business’s long-term prospects are much less clear. On a 3-5 year timeline, analysts are only projecting annualized EPS growth of about 5.7 percent. This could put shareholders in a tough position, especially considering the premium price tag that XYZ is already going for.
Right now, Block could be slightly too pricey for investors to buy with shares still rising due to its inclusion in the S&P 500. XYZ is currently being sent higher due to market dynamics, but there are still some risks associated with its business.
This is especially true with consumer spending potentially being strained by inflation, which could reduce the revenues produced by Block’s payment services. Block could be a good stock to hold or watch for more attractive entry points, but it may be a bit too risky to buy until some of the dust has settled from its recent upward surge.
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.