Block (NYSE:SQ) stock is struggling to recover after an ugly selloff to start the year.
SQ stock trades today at $108. As recently as late February, Block’s stock was trading as low as $82.72.
The share price bounced up to $127.50 a share following better-than-expected earnings, but has been unable to sustain any momentum during the current market volatility and continues to fall backwards after each rally.
While some of the movement is positive, the fintech company has yet to recover from a punishing downturn that has seen its share price fall more than 60% from last August’s highs above $250.
A Closer Look at Block
Despite being beaten up over the past six months, SQ stock has a lot to recommend it. The company issued fourth quarter numbers on Feb. 24.
Its revenue increased 29% year-over-year to $4.08 billion, which beat analysts’ expectations by $20 million. Bitcoin (BTC-USD) revenue, which is generated through the company’s popular Cash App, increased 12% to $1.96 billion.
Overall, Cash App’s transactions, which remain Block’s bread-and-butter, rose 45% as more people used its peer-to-peer payments. The Cash App also reached 44 million monthly active transacting users at the end of last year, up 22% from the prior-year period.
The Q4 earnings easily trounced Wall Street expectations, sending SQ stock higher for a brief period.
The company didn’t provide any forward guidance for this year but said it does expect operating expenses to rise by $2.3 billion as it increases its investments.
There also will be costs as it integrates the “buy now, pay late” platform Afterpay that it purchased last year for $29 billion. Block has said that it plans to integrate Afterpay into its Cash App moving forward.
The company’s valuation has improved with the stock now trading at less than four times this year’s sales. Block is much cheaper in terms of valuation than rivals PayPal (NASDAQ:PYPL) and Affirm (NASDAQ:AFRM).
Bullish Sentiment
Sentiment has turned increasingly bullish on Block following its fourth-quarter print. A number of Wall Street analysts have revised up their ratings and price targets on the company’s stock in recent weeks.
Bank of America (NYSE:BAC) raised its rating on SQ stock to “buy” from “neutral” and placed a $185 price target on the shares. Bank of America said that the market is undervaluing Block’s Cash App business, which is hurting the stock price. Fears of rising interest rates and slowing growth have also held back the stock.
“Investors who buy Block will be getting Cash App at a bargain,” wrote Bank of America analyst Jason Kupferberg in a note to clients.
Among 36 professional analysts who cover Block, the median price target on the company’s stock is currently $179. The vast majority of analysts (29 in total ) have a “buy” rating on the stock.
However, while sentiment toward Block is improving, some risks remain. Higher interest rates are expected to slow growth at big tech names such as Block, and the company remains heavily exposed to volatile cryptocurrencies, currently holding more than 8,000 physical Bitcoins worth about $335 million.
Take a Small Position in SQ Stock
The so called “tech wreck” may not yet be over and there could be more pain ahead for shareholders of Block.
Yet it is impossible to ignore the digital payment company’s stock at its current price of less than $120 per share. The valuation levels look attractive after a devastating selloff in recent months.
At current levels, it might be worth it for investors to take a small position in Block and add to it over time if it becomes clear that the shares have bottomed and are recovering in a sustainable way. While risks remain, Block looks too attractive right now to pass up. SQ stock is a buy.
Disclosure: On the date of publication, Joel Baglole held a long position in SQ. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Joel Baglole has been a business journalist for 20 years. He spent five years as a staff reporter at The Wall Street Journal, and has also written for The Washington Post and Toronto Star newspapers, as well as financial websites such as The Motley Fool and Investopedia.
