Block, Inc.'s (NYSE:SQ) Shares Leap 25% Yet They're Still Not Telling The Full Story

Despite an already strong run, Block, Inc. (NYSE:SQ) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 57% in the last year.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Block's P/S ratio of 2.4x, since the median price-to-sales (or "P/S") ratio for the Diversified Financial industry in the United States is also close to 2.7x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

See our latest analysis for Block

What Does Block's P/S Mean For Shareholders?

Block's revenue growth of late has been pretty similar to most other companies. The P/S ratio is probably moderate because investors think this modest revenue performance will continue. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

Want the full picture on analyst estimates for the company? Then our free report on Block will help you uncover what's on the horizon.

How Is Block's Revenue Growth Trending?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Block's to be considered reasonable.

If we review the last year of revenue growth, the company posted a worthy increase of 15%. Pleasingly, revenue has also lifted 43% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenues over that time.

Shifting to the future, estimates from the analysts covering the company suggest revenue should grow by 11% per annum over the next three years. That's shaping up to be materially higher than the 8.8% per year growth forecast for the broader industry.

With this in consideration, we find it intriguing that Block's P/S is closely matching its industry peers. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What Does Block's P/S Mean For Investors?

Block's stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

Looking at Block's analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. This uncertainty seems to be reflected in the share price which, while stable, could be higher given the revenue forecasts.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Block that you should be aware of.

If these risks are making you reconsider your opinion on Block, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.