Block: Same Square Problems

 

  • Block rallied 26% following strong Q4'21 earnings.
  • The big rally is nearly equal to the returns any investors should expect for the full year.
  • The stock is already expensive trading back at 12x adjusted revenue targets while the BNPL product introduces additional lending risks.
  • Looking for more investing ideas like this one? Get them exclusively at Out Fox The Street. Learn More »

Block (SQ) is finally worth a serious look after the fintech sector has corrected the last few months. The company has a new name, but investors still have to make sure the correct financials are analyzed due to the massive amount of revenues generated by bitcoin. My investment thesis is far more constructive on the stock now, though disappointed in the massive post-earnings jump and the acquisition of Afterpay.

Read the full article on Seeking Alpha. 

Disclosure: No position mentioned. Please review the disclaimer page for more details. 

Update - Feb. 28 

These analysts won't quit over paying. BMO Capital wants people to pay 60x '23 earnings for $SQ.

-Block (NYSE:SQ) stock is gaining 1.9% in early trading on Monday after BMO Capital Markets analyst James Fotheringham upgraded Block (SQ) on his more-bullish-than-the-Street expectations for Cash App user growth and product monetization and Afterpay acquisition accretion.

-Fotheringham considers Block's (SQ) investor day on May 18 as a potential positive catalyst. "We look forward to guidance regarding synergies expected from SQ's recently completed acquisition of Afterpay, and the benefits of connecting SQ's merchant-facing Square business to its consumer-facing Cash App business via BNPL (Buy Now, Pay Later)."

-His $159 price target implies a 33% upside to Friday's close of $119.82. 60x target multiple is derived from historical industry-wide relationship between organic revenue growth potential and value with BMO's +32% estimate for Block's (SQ) out-year revenue growth. "SQ's forward P/E recently de-rated by 70%: from 140x a year ago to 45x today."

-The analyst's 2023 EPS estimate of $2.66 is 9% above Street consensus.

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