Will Block Stock Recover From Its Massive Downfall?

SQ traded as high as $289 10 months ago

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Block, Inc. (NYSE:SQ), formerly Square, spent the majority of May in double-digit territory, a far cry from its Aug. 5 record high of $289.30. With such a sharp drawdown, is SQ worth a flier at its discounted price?

The fintech stock offers an intriguing valuation for the level of top-line growth they have produced in recent years. Block stock currently trades at a cheap price-sales ratio of 2.58 despite generating 86% revenue growth in fiscal 2021 and having grown their yearly revenues by 402% since fiscal 2018. Moreover, SQ holds a manageable balance sheet with $4.79 billion in cash and $5.15 billion in total debt, which is positive for their long-term growth potential.

SQ's inconsistent bottom-line growth and poor 2022 estimates have contributed largely to Block stock’s massive downfall. The tech company reported a 43% decrease in net income for fiscal 2020, followed by a 22% decrease for fiscal 2021. In addition, Block stock has an extremely high forward price-earnings ratio of 104.17 and is estimated to end fiscal 2022 with a 48.5% decrease in earnings and just a 1% increase in revenues. However, the tech company is expected to bounce back in fiscal 2023 with 92% estimated earnings growth and 20.9% estimated revenue growth, making SQ an attractive recovery play over the coming year and a promising growth play for less risk-averse investors.

Options are an intriguing route, considering SQ sports a Schaeffer's Volatility Scorecard (SVS) rating of 87 out of a possible 100. This implies Block has tended to outperform options traders' volatility expectations of late -- a boon for call buyers. 

 
 
 

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