Block: Should I Buy, Sell, or Hold?
Investors in this leading fintech are wondering what to do after seeing their shares fall by 72% over the previous year.
One of the most severely affected industries in the recent market meltdown, along with growing tech stocks, has been the fintech industry. And maybe the most well-known of them all, Block (SQ 3.97%), has been particularly battered; shares of this pioneer in digital payments have plunged by more than 60% this year.
The moment has now come to decide whether any portfolio adjustments are necessary. Let's look at Block's strengths as an investment, which, in my opinion, make the company an excellent buy right now.
An effective two-sided ecology
Block is divided into two major sections. The first is the Square seller ecosystem, which gives small and medium-sized enterprises access to a variety of software, hardware, and financial services solutions to perform tasks including accepting payments, establishing customer loyalty programs, and managing inventory. In the first quarter of 2022, this segment had a gross profit of $661 million, an increase of 41% year over year.Then there is Cash App, a well-known app for personal finance that has 44 million users who are active each month. Although the Cash App is mostly used to send money to pals, it also offers other services, including direct deposit, a linked debit card, buying and selling stocks, and Bitcoin trading (BTC -0.48 percent ). In the first quarter, Cash App's gross profit increased by 26% to $624 million from the corresponding period in 2016.
While Square and Cash App are both excellent fintech companies on their own, Block is genuinely unique in the way that both divisions work together to strengthen the entire organization. Users of the Cash App can instantly pay at Square retailers using their balances thanks to a feature called Cash App Pay. And now that Block has acquired Afterpay, a company that specializes in buy now, pay later transactions, both Square retailers and Cash App consumers can use this cutting-edge payment method.
Block's network effects grow as it keeps releasing new features that deepen the integration between its Cash App and Square ecosystems. More small companies will want to become Square merchants as more people use the Cash App since they have access to tens of millions of additional prospective customers right away. Additionally, the more merchants that accept Cash App payments, the more desirable having a Cash App account becomes. Block is in a strong position to compete because of these circumstances.
There is a lot of room for expansion.
has experienced rapid growth recently, but the future is still tremendously promising. Both Square and Cash App already offer a wide range of services, as I've mentioned previously. But as the company keeps adding new features, its clientele will grow even more loyal, and sales will rise.
The business can also expand into foreign markets. Block is currently available in the United States, Canada, Japan, Australia, the United Kingdom, Ireland, France, and Spain. However, the U.S. accounted for 94% of all sales in the first quarter of 2022. As a result, there is still a tremendous possibility for growth in international markets.
Block also owns and runs a number of unremarkable businesses. Similar to Apple Music or Spotify, Tidal is a music streaming service, but it aims to strengthen bonds between artists and listeners. Much like Square and Cash App, Tidal wants to give economic empowerment to people who have typically been overlooked by larger companies.
Then there is Block's commitment to expanding Bitcoin adoption, which Chief Executive Officer Jack Dorsey is a strong supporter of. Creating a decentralized exchange to purchase and sell Bitcoin without the need for a centralized service provider is the aim of TBD. Dorsey also wants Spiral developers to figure out how to connect the Lightning Network to applications and cryptocurrency wallets.
Block's business is deeply rooted in the realm of Bitcoin and digital payments, so there are many prospects for growth as the world transitions to cashless transactions and cryptocurrencies gain popularity.
Presently valued
Even if a company has excellent qualitative traits, investors should exercise caution if the pricing isn't fair. However, following Block's recent price collapse, shares are now trading at a price-to-sales ratio of just under two, which is almost the lowest price ever assigned to the firm.The correct inquiry is why Block's stock price is so disconnected from the business's actual performance. The possibility of an impending recession exists because the Federal Reserve plans to significantly boost interest rates this year in a bid to stop inflation from reaching a 40-year high. And in favor of more cautious purchases, investors have sold off their costly, high-growth stocks. Unfortunately, they included Block's shares.
Nevertheless, this is a unique opportunity for long-term investors. Block is a great company with a stock that is a no-brainer to buy because it is valued below average.
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