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Time to Buy the Recent dip in Block (SQ) Stock?

While many tech stocks have continued to rise this year, Block (SQ) stock had its worst week in over three years after short-seller Hindenburg Research questioned its business operations.

CEO Jack Dorsey dismissed the comments as factually incorrect and investors may be wondering if the popular fintech stock was oversold.

Let’s see if it's time to buy Block’s stock after this week's selloff.

Hindenburg Report

Activist short-selling firm Hindenburg Research stated that Block inflates its user numbers causing shares of SQ to fall 15% on Thursday. Along with the inflated metrics, the selloff was intensified as the report also alleges that Block enabled criminals to use its cash app platform due to a lack of compliance controls.

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The report was based on information Hindenburg says was gathered over a two year span. Still, Block stated Hindenburg's comments are misleading and were designed to deceive and confuse investors.

Some investors appear to be taking Hindenburg's report with a grain of salt as Cathie Wood’s Ark Investment Management has already added large positions in Block’s stock following the selloff.

Performance & Valuation

Looking at Block’s performance and valuation will give a better gauge on if its time to buy SQ shares after this week’s decline.

Block's stock ended the week down almost 20%. Year to date, Block stock has now dropped -3% to trail the S&P 500 and online payment solution competitor PayPal’s (PYPL) +3% performances.

However, Block stock is still up +372% since going public in 2015 to easily topped the benchmark and PayPal’s +103% during this time span.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Block stock currently trades at $60 per share and 37.1X forward earnings. This is well below its extreme historical high and 93% beneath the median of 551.3X. With that being said, Block still trades above PayPal’s 14.8X and its industry average of 20.8X.  

Growth & Outlook

Monitoring Block’s growth and outlook will certainly be important after the Hindenburg accusations and the steep decline in SQ shares.   

In this regard, Block’s earnings are projected to jump 67% this year at $1.67 per share compared to EPS of $1.00 in 2022. Even better, fiscal 2024 earnings are expected to climb another 39% to $2.33 per share. Earnings estimate revisions have slightly declined over the last two months.

On the top line, sales are forecasted to be up 12% in FY23 and rise another 14% in FY24 to $22.57 billion. More impressive, fiscal 2024 would represent 379% growth over the last five years with 2019 sales at $4.71 billion.

Zacks Investment Research
Zacks Investment Research


Image Source: Zacks Investment Research

Bottom Line

Block stock currently lands a Zacks Rank #3 (Hold) at the moment. While the top-line growth of the company is very intriguing much remains to be seen on the bottom line with inflation affecting many tech stocks over the last year.

Still, Block does trade attractively relative to its past, and holding on to shares at current levels could be rewarding when considering its performance since going public. The acquisitions in the Hindenburg report will certainly bring attention to any better practices that are needed as Block continues to grow its financial and marketing services and comprehensive commerce ecosystem.

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Zacks Investment Research