For long stretches in 2021, Block (NYSE:SQ) was a $250 stock. For even longer stretches, SQ stock has traded around $50. It’s hard to know what the “true” value is of the fintech led by Jack Dorsey.
One thing I know for sure is that it will probably continue to be a wild ride for Block shareholders.
As I write, SQ is up nearly 17% in pre-market trading. If it sticks, it will again be a $50 stock, largely thanks to a healthy earnings report. However, the enthusiasm for its shares probably won’t last more than a day or two.
Investors can’t decide if Block is a winner or a loser. Is it a $50 or $250 stock? I think it’s precisely in the middle. As for the rest of the investors, I suspect their target prices are scattered.
Block will continue to attract a wide assortment of assessments, good and bad, demonstrating that it is a little of both.
You can make money off that. Here’s how.
Block Solves More Problems
I returned to find the first time I wrote about Block (formerly Square) for InvestorPlace. I can’t say with 100% certainty, but I think the first time was April 2018. In hindsight, it had a humorous headline: Square Inc vs. Twitter Inc: Which Is the Better Buy?
“Twitter and Square’s annual revenues are very similar at $2.4 billion and $2.2 billion, respectively. In terms of operating cash flow, Twitter has it beat with $831 million in 2017 compared to $128 million for Square,” I wrote on April 6, 2018.
“Despite the difference in cash flow, I see Square having the higher market cap in five years because it solves more problems than Twitter does.”
From that day forward, I was bullish on SQ stock. And I was right about the market cap. Block is close to $30 billion, while Twitter, thanks to Elon Musk, is worth $19 billion, less than half what he paid.
Five years on, I still believe that Block solves more problems. As long as Jack Dorsey focuses on that ideal, SQ stock will be more of a $250 stock than a $50 one.
But that’s just my opinion.
The Latest Earnings News
Block reported its Q3 2023 results on Nov. 2 after the markets closed. It handily beat analyst estimates on both the top and bottom lines. Revenues were $5.62 billion, $180 million higher than the consensus. Its earnings per share were 55 cents adjusted, eight cents above the estimate.
As a result of the third-quarter results, it expects its full-year adjusted earnings before interest, taxes, and depreciation (EBITDA) to be $1.67 billion at the midpoint of its guidance, $170 million higher than its previous estimate.
As for adjusted operating income, it previously said it would earn $25 million for 2023. That’s been upped to a whopping $215 million at the midpoint, with $875 million in 2024.
In its Q3 2023 shareholder letter, Dorsey said it would meet its Rule of 40 goal in 2026. That’s the combination of its gross profit growth rate in a given year combined with its adjusted operating margin.
As a result, it expects its free cash flow generation to improve. It has enacted a $1 billion share repurchase plan to return some of it to shareholders.
“Over the past few months we’ve reset the relationship between Square and Cash App and restructured Afterpay to ensure a stronger connection between each, and most importantly, create an innovative customer experience. We finally have line of sight to seeing more of Square within Cash App, and vice versa,” Dorsey wrote in the shareholder letter.
I encourage you to read the letter. It has an edge to it. I don’t know about the rest of the company, but Jack Dorsey seems more focused than ever, which is an excellent thing.
Goodbye $50, here comes $100.
The Bottom Line on SQ Stock
The reason for the headline is that Block has always had tremendous potential. It just hasn’t been able to put it together in one efficient, profitable package. Hence the yo-yo effect with its share price.
Will that go away if it meets its various goals for 2024 and beyond? Probably not.
But as I said earlier, if it continues to provide an exceptional customer experience while solving more problems; as a result, its share price has a better shot than not at being a $250 stock in the future.
I look forward to following Block’s journey.
On the date of publication, Will Ashworth 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.
