One of the more impressive movers in today’s market is Block (NYSE:SQ). After surging more than 6% in early trading, shares of SQ stock have since settled down to a 3% gain. That said, this kind of intraday move for a $42 billion market capitalization company is a big deal.
Today’s price action with Block appears to be tied to a statement released on Thursday, citing “inaccuracies” with a previous short report from Hindenburg Research. After initially making a brief statement last week, the company put forward a more detailed response to Hindenburg’s report.
The bulk of Hindenburg’s short thesis around Block centers on how the company handles fraud within its Cash App. Block has since responded that only 2.4% of Cash App accounts were “denylisted,” essentially ruling out the underlying thesis purported by Hindenburg that 40%-75% of all accounts were fake or tied to fraud.
Block also noted that 44 million of roughly 51 million monthly active users were verified through the company’s verification program. Thus, Hindenburg’s math may be a little off.
Let’s dive into what to make of this news and today’s rally in SQ stock.
SQ Stock Surges as Company Rebuts Short Seller Claims
It should be noted that Hindenburg Research has been among the most on-target short sellers out there. This outfit has been more correct than not with its targets, with Indian mega-conglomerate Adani Group being among the latest victims of Hindeburg’s research.
That said, Block’s rebuttal appears to be firm, and the ability of the company to release specific data addressing some of the claims is of even more importance. If investors believe that Block’s core business remains solid (there’s always some element of fraud everywhere), then this stock may continue to make sense from a fundamentals perspective. Currently, it appears most investors tend to be giving Block the benefit of the doubt. Whether right or wrong, that’s how it’s shaping up right now.
We’ll have to see what ultimately comes of these allegations and whether an investigation by regulators is launched. For now, SQ stock appears to be in an interesting position, having made back much of the losses seen following this short report.
Block is one stock I’ve got on my watch list. While it may be too risky for my blood, I can certainly see why growth investors may want to take a stab at SQ stock on this meaningful decline.
On the date of publication, Chris MacDonald 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.
