Is Block (SQ) Undervalued? Examining the Latest Narrative Shifts and Fair Value Signals

Block (NYSE:XYZ) has been grabbing the attention of investors lately, and it is not just because of any one head-turning announcement. The moves happening right now might look subtle on the surface, but for those following the stock, even minor shifts can prompt big questions about where Block’s business is heading and what the market is signaling.

In the broader context, Block’s share price has picked up some positive momentum over the past three months, supported by a 20% gain. However, the long-term picture is a bit bumpier. While the past year shows a 13% total return, the year-to-date figure is still in the red. Looking further back, the five-year return stands out as particularly soft. Recent revenue growth has been healthy, but net income growth has slipped slightly. There have not been big headlines recently, so investors are left parsing the price action in search of direction and future growth signals.

With the latest movements in the stock, the real question is whether Block is offering a genuine bargain or if the market is already factoring in any future growth.

Most Popular Narrative: 13.1% Undervalued

According to the most widely followed narrative, Block’s current share price trades at a meaningful discount to its estimated fair value. Analysts believe strong catalysts could boost Block’s value even higher if current projections hold.

“Aggressive investments in international expansion (25% YoY GPV growth in international markets) and upmarket sales motions (rapid ramp in field/telesales, strong ROI and payback periods) increase the platform's total addressable market, diversify revenue streams, and create long-term compounding effects on both revenue and operating income, as new customer cohorts and markets mature.”

Curious about what is driving this bullish outlook? The narrative leans on gutsy growth forecasts, margin trends, and ambitious profit multiples to justify its fair value target. Want to know which assumptions unlock this price? The numbers behind the optimism might surprise you.

Result: Fair Value of $87.17 (UNDERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, risks such as increased competition and Block's growing reliance on lending products could quickly alter the optimistic outlook that analysts currently hold.

Find out about the key risks to this Block narrative.

Another View: Discounted Cash Flow Says Block Is Overvalued

While analysts see Block as undervalued based on future earnings potential, our SWS DCF model takes a more cautious stance. The analysis suggests the current share price sits above fair value. Could this signal that optimism is running too high?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Block for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Block Narrative

If you would rather rely on your own research or have a different take on the numbers, you can quickly build your own narrative and see what it reveals, all in under three minutes. Do it your way

A great starting point for your Block research is our analysis highlighting 3 key rewards and 2 important warning signs that could impact your investment decision.

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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.

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