Block Could Get Rocked on Year-Over-Year Comparisons

Block (NASDAQ:SQ) stock has had a bumpy ride down, off more than 40% on the year.

The logo for Block (SQ) is shown on a phone screen with the company's old name and logo, Square, visible behind the phone.
Source: Sergei Elagin / Shutterstock.com

The company changed its name last year from Square, but essentially it’s still the same tech company that operates through a suite of products.

Those products help business owners operate and allow consumers to invest and send money. They also enable customers to trade and invest in Bitcoin (BTC-USD), and touch on blockchain technology in various ways.

Gen Z and Millenials could provide SQ stock a real boost. Citigroup (NYSE:C) analyst Peter Christiansen notes that growth in those groups is “admirable considering the bulk of this age group is still several years from reaching its earnings potential.”

Gen Z and Millenials collectively comprise people ages 10 to 41. Gen Z accounts for 72 million people, and Millennials are predicted to remain the largest cohort of the population in 2022.

Christiansen was referring to Cash App users when he made that comment prior to the Feb. 24 Q4 earnings report. He believed that Cash App gross profit growth would reach 70% for all of 2021. 

Earnings Results

Cash App’s gross profit growth reached 69% for all of 2021. Although that figure was slightly below what the Citigroup analyst was looking for, it didn’t harm Block. Share prices moved up sharply from $95 to $119 on the news. 

There’s plenty of positive news that relates to Cash App. Cash App is a key driver of the overall business. It provided $2.07 billion of the firm’s $4.42 billion in 2021 gross profits. 

The important thing to note is that Cash App has stabilized. It was a significant bneneficiary of the digital payment boom during the pandemic. 

Cash App reported 2nd and 3rd quarter sequential gross profit drop-offs. That seemed to reinforce earlier worries that Cash App’s success was due to pandemic tailwinds. Investors worried that Cash App wouldn’t rebound, but rebound it did.

It popped up in Q4 which has led investors to see a stabilization of its former issues. That sounds promising but there’s a catch: Growth could dip in Q1 when Cash App will be compared to results from a year earlier when stimulus checks were sent out. 

That has caused trepidation on the part of Wall Street. Citigroup has given SQ stock a “buy” rating but dropped its target price to $220 from $320. Wedbush analyst Moshe Katri has it rated “neutral” and gives it a $140 price target.

That’s less than the average target price Wall Street has assigned to Block which sits at $182.18. That implies significant upside from current price levels. SQ trades today at about $97.50.

However, there’s the caveat that Square faces a Q1 which will be compared to a year earlier when consumers were flush with stimulus cash. 

That could really hurt it in a few months

What to Do

Block is probably in the best position right now. That means it is doing well on the afterglow from its earnings. Consider that things could change in a few months again.

I wouldn’t buy in now because there’s little to signal that investors want to pursue growth stocks. 

On the date of publication, Alex Sirois did not have (either directly or indirectly) any 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.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks. Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.

Alex Sirois is a freelance contributor to InvestorPlace whose personal stock investing style is focused on long-term, buy-and-hold, wealth-building stock picks.Having worked in several industries from e-commerce to translation to education and utilizing his MBA from George Washington University, he brings a diverse set of skills through which he filters his writing.


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