Back in December, I surmised that Block (NYSE:SQ) stock was in a better position now that Chief Executive Officer (CEO) Jack Dorsey gave up his leadership position at Twitter (NYSE:TWTR) so he could fully focus on Block.
Doing double duty at two companies was a weakness, I thought. But by just focusing on one company, Dorsey is in a much better position to work on Block projects and innovation.
How has Block done since I said that? Not so great. SQ stock is down 36% since that article went live. Just over the last 30 days, Block is down 26.6%.
Of course, those losses don’t have a lot to do with Dorsey — I’m giving him a pass. The entire tech sector is being butchered in recent weeks. Investors are more concerned with rising inflation and the near-certainty of higher interest rates as early as March.
But fear not. This downturn is a huge opportunity for long-term investors who have been looking to jump into tech stocks in preparation for the inevitable bull market that will follow.
How huge will it be? SQ stock currently trades at less than $110. And the median price target for Block, based on Wall Street Journal’s analysts’ price targets, is $230. So, you’re looking at upside of more than 100%.
Here is why I think SQ stock will eventually get there.
Block at a Glance
Block is probably still better known as its former moniker of Square. As Square, the company started operations more than a decade ago. It is a cash payment platform that first gained popularity for its white plastic dongles that plugged into smartphones and tablets.
The dongles allowed any small business or even scout troops to accept payments by swiping credit or debit cards through the dongle. Pretty nifty.
The fintech company took the next logical step by launching Cash App. Touted as the No. 1 financial app in the U.S., Cash App allows users to transfer funds electronically in a customer-to-customer platform. You can use Cash App to send cash to a friend or your kids, or you can use it to pay for goods and services. Again, it is pretty cool.
Both of these products were popular because they help people use money in the way they like to use it. Lots of people prefer to forgo carrying cash and coins and just pay for things digitally. Square’s plastic dongles meant you just needed a credit card. And with the Cash App, you can even leave your plastic at home and process your payments from your smartphone.
Bring on Bitcoin
Square, now known as Block, was one of the early adapters of cryptocurrency. The company invested in Bitcoin (CCC:BTC-USD) and it allowed customers to be paid in bitcoin when they used Cash App.
In July, the company announced it was creating a new business that would build an open developer platform to make it easy to create decentralized financial services, Reuters reported.
Then in October, Dorsey announced that Block was exploring if it could build a bitcoin mining system that would be based on custom silicon and open source for individuals and businesses.
Those announcements led to the most recent news — that Block is getting into the bitcoin mining business. Thomas Templeton, the company’s general manager for hardware, said the goal was to make bitcoin mining more accessible and efficient.
To mine bitcoin, you need to have powerful computers with an application-specific integrated circuit (ASIC). Those can be incredibly expensive. Block says part of its work is to make a new ASIC.
The Bottom Line on SQ Stock
If you’re looking for a revenue beat from SQ stock, you’ll likely be disappointed. In the third quarter, the company posted revenue of $3.8 billion, which missed analysts’ estimates of $4.4 billion. And considering how weak the stock was in the last few weeks, I’m not expecting a big earning surprise when Block reports in March.
But if you’re investing in SQ these days, you should be in it for the long haul. And in that regard, I think Block should be a winner. Dorsey is fully engaged and is working his magic to find new ways for his fintech company to stay ahead of the curve.
Cathie Wood of Ark Invest has the right idea. Her Ark Innovation Trust ETF (NYSEARCA:ARKK) added $62.6 million worth of shares of SQ stock so far this year. I wouldn’t be surprised to see it add more.
If Block can be successful in making bitcoin mining more accessible, that $230 price target will look pretty conservative.
On the date of publication, Patrick Sanders was long BTC-USD. He did not have (either directly or indirectly) any other positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Patrick Sanders is a freelance writer and editor in Maryland, and from 2015 to 2019 was head of the investment advice section at U.S. News & World Report. Follow him on Twitter at @1patricksanders.
