Block Stock To $79?

Block (XYZ) stock has fallen 6.6% during the past day, and is currently trading at $60.11. Our multi-factor assessment suggests that it may be time to buy more shares of XYZ stock. We have, overall, a positive view of the stock, and a price of $79 may not be out of reach. We believe there is a near-equal mix of good and bad in XYZ stock given its overall Moderate operating performance and financial condition. Considering stock’s Low valuation we think it is Attractive.

Below is our assessment:

When markets turn, single-asset exposure hurts. Smart financial advisors protect client wealth by working with partners who allocate across multiple asset classes – including the High Quality Portfolio.

Let’s get into details of each of the assessed factors but before that, for quick background: With $37 Bil in market cap, Block provides tools for card payments, transaction reporting, next-day settlement, and hardware like Magstripe and contactless chip readers, plus an iPad-based point of sale solution.

[1] Valuation Looks Low

This table highlights how XYZ is valued vs broader market. For more details see: XYZ Valuation Ratios

[2] Growth Is Moderate

• Block has seen its top line grow at an average rate of 12.6% over the last 3 years
• Its revenues have grown 0.5% from $24 Bil to $24 Bil in the last 12 months
• Also, its quarterly revenues grew 2.3% to $6.1 Bil in the most recent quarter from $6.0 Bil a year ago.

This table highlights how XYZ is growing vs broader market. For more details see: XYZ Revenue Comparison

[3] Profitability Appears Weak

• XYZ last 12 month operating income was $2.3 Bil representing operating margin of 9.6%
• With cash flow margin of 8.2%, it generated nearly $2.0 Bil in operating cash flow over this period
• For the same period, XYZ generated nearly $3.1 Bil in net income, suggesting net margin of about 13.1%

This table highlights how XYZ profitability vs broader market. For more details see: XYZ Operating Income Comparison

[4] Financial Stability Looks Very Strong

• XYZ Debt was $8.1 Bil at the end of the most recent quarter, while its current Market Cap is $37 Bil. This implies Debt-to-Equity Ratio of 18.3%
• XYZ Cash (including cash equivalents) makes up $14 Bil of $39 Bil in total Assets. This yields a Cash-to-Assets Ratio of 34.7%

[5] Downturn Resilience Is Weak

XYZ has fared worse than the S&P 500 index during various economic downturns. We assess this based on both (a) how much the stock fell and, (b) how quickly it recovered.

2022 Inflation Shock

• XYZ stock fell 86.1% from a high of $281.81 on 5 August 2021 to $39.22 on 30 October 2023 vs. a peak-to-trough decline of 25.4% for the S&P 500.
• The stock is yet to recover to its pre-Crisis high
• The highest the stock has reached since then is $98.92 on 4 December 2024 , and currently trades at $60.11

 
2020 Covid Pandemic

• XYZ stock fell 55.6% from a high of $85.70 on 20 February 2020 to $38.09 on 20 March 2020 vs. a peak-to-trough decline of 33.9% for the S&P 500.
• However, the stock fully recovered to its pre-Crisis peak by 2 June 2020

But the risk is not limited to major market crashes. Stocks fall even when markets are good – think events like earnings, business updates, outlook changes. Read XYZ Dip Buyer Analyses to see how the stock has recovered from sharp dips in the past.

The Trefis High Quality (HQ) Portfolio, with a collection of 30 stocks, has a track record of comfortably outperforming its benchmark that includes all 3 – the S&P 500, S&P mid-cap, and Russell 2000 indices. Why is that? As a group, HQ Portfolio stocks provided better returns with less risk versus the benchmark index; less of a roller-coaster ride, as evident in HQ Portfolio performance metrics.