Despite a daily loss of 4.57% and a 3-month loss of 15.4%, Block Inc (SQ, Financial) has caught the attention of value investors. The company reported a Loss Per Share of 0.43, raising questions about its valuation. Is Block significantly undervalued as it seems? This article provides a meticulous analysis of Block's valuation, aiming to answer this question. We invite you to delve into the following sections for a comprehensive understanding.
Company Snapshot: Block Inc (SQ, Financial)
Founded in 2009, Block provides payment services to merchants, along with related services. The company also launched Cash App, a person-to-person payment network. In 2022, Block's payment volume was a little over $200 million. With a current stock price of $53.48, Block's market cap stands at $32.60 billion. This figure is significantly lower than the company's GF Value of $115.56, suggesting that the stock might be undervalued.
Understanding the GF Value
The GF Value is a proprietary measure of a stock's intrinsic value, calculated based on historical trading multiples, a GuruFocus adjustment factor, and future business performance estimates. The GF Value Line provides an overview of the fair value at which the stock should ideally trade. If the stock price is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if the stock price is significantly below the GF Value Line, its future return will likely be higher.
Block's GF Value Analysis
According to the GF Value calculation, Block (SQ, Financial) stock is believed to be significantly undervalued. This suggests that the long-term return of its stock is likely to be much higher than its business growth. The following chart provides a visual representation of Block's GF Value and its stock price.
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Block's Financial Strength
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's crucial to review a company's financial strength before deciding to buy shares. Block has a cash-to-debt ratio of 1.74, which ranks worse than 56.79% of 2738 companies in the Software industry. Based on this, GuruFocus ranks Block's financial strength as 6 out of 10, suggesting a fair balance sheet.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over long term, is less risky. Block has been profitable 3 times over the past 10 years. Over the past twelve months, the company had a revenue of $19.70 billion and a Loss Per Share of $0.43. Its operating margin is -1.58%, which ranks worse than 58.15% of 2719 companies in the Software industry. Overall, the profitability of Block is ranked 5 out of 10, which indicates fair profitability.
One of the most important factors in the valuation of a company is growth. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Block is 44.1%, which ranks better than 91.44% of 2396 companies in the Software industry. However, the 3-year average EBITDA growth is 0%, which ranks worse than 0% of 1996 companies in the Software industry.
ROIC vs WACC
Another way to evaluate a company's profitability is to compare its return on invested capital (ROIC) to its weighted average cost of capital (WACC). If the ROIC is higher than the WACC, it indicates that the company is creating value for shareholders. Over the past 12 months, Block's ROIC was -1.7, while its WACC came in at 15.89.
Conclusion
In conclusion, the stock of Block (SQ, Financial) is believed to be significantly undervalued. The company's financial condition is fair, and its profitability is fair. However, its growth ranks worse than 0% of 1996 companies in the Software industry. To learn more about Block stock, you can check out its 30-Year Financials here.
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