Should You Buy Block Stocks While They’re Below $70?

Block (SQ -1.72%) was once a hot fintech disruptor with an innovative platform that captured the market’s attention and skyrocketed. Unfortunately, it has since fallen flat and is now about 76% off its all-time highs.

He’s made some progress over the past year, though, and could start climbing soon. Should you buy it while it’s still under $70 per share?

What investors love about Block

Block still has the same innovative spirit that drives its product development and creates real and useful solutions for customers. What started as a small business IT hardware company now offers a wide range of products and services — in fact an entire fintech ecosystem, for businesses of all sizes. It constantly upgrades the platform with new features that make it easier to manage tedious and frustrating tasks for businesses.

It also has the personal finance app Cash App that performs similar functions for individuals, with all kinds of connected and easy-to-manage financial services.

One thing Block has been consistent with is growth. It has been reliable for steady revenue increases over the past few years, including 11% year-over-year in the second quarter of 2024.

Cash App accounted for most of the revenue at $4.13 billion and also growth, which was 12%. The vendor’s business revenue was $1.98 billion, up 9% year-over-year.

What to watch out for

There have been several issues that have plagued Block in recent years. One is CEO Jack Dorsey’s obsession with Bitcoin. Block has spent millions of dollars on Bitcoin, and as a result, Bitcoin fluctuations have a huge impact on the company’s financial performance. Excluding Bitcoin trading, which Block reports as revenue, Cash app revenue was up 18% year-over-year, and total revenue was up 13%.

This quarter, Bitcoin had a negative impact. In other sectors, it was positive. However, it affects the financial situation of the company more than I would like.

Another concern is that Block’s growth has not been supported by profits. Profitability has fallen off a cliff as Block has grown and management has cut spending recently. However, it’s still not what you’d like to see from a company with thin assets.

For example, consider Block’s performance compared to the competition PayPal. Also note that investors have considered PayPal’s results in recent years to be below par.

SQ Gross Profit Margin (quarterly) data by YCharts

PayPal is and has been in a much better position than Block. In the past, investors were okay with this because Block was perceived as an innovator with great potential. However, it has failed to realize this potential for too long.

In the latest shareholder letter, Dorsey said Block will resume its marketing efforts. That was a little alarming to me because it’s important for Block to run a tight ship.

Is Block stock a good value?

You probably won’t be surprised to hear that I consider Block to be a risky play right now. It’s extremely cheap, trading at 1.8 times trailing 12-month sales and 15 times forward one-year earnings.

But it’s cheap because today the market isn’t excited about it, and investors have to be worried that this could be a value trap.

Block has a popular, growing platform and profitability is improving. Management knows it needs to balance spending more carefully as it grows, and in a few years it could be in a much better place. I’d say that at the current price, Block stock is a prudent buy for risk-tolerant investors with a long time horizon.