Block: A Bargain Stock with Strong Growth Potential
Block, formerly known as Square, is a leading innovator in the digital payments industry, making it a company worth considering for investors. With shares currently trading at a significant discount compared to its historical price-to-sales ratio, Block presents an attractive buying opportunity.
One of the key factors that sets Block apart is its economic moat, particularly its high switching costs. Originally focused on serving small merchants, Block’s Square segment offers a comprehensive range of hardware and software point-of-sale payment solutions, as well as additional services like invoicing, loyalty programs, and employee payroll. This makes Square an indispensable component of small businesses’ operations, creating obstacles for customers looking to switch to a competitor’s offering.
Block’s Cash App is another aspect of its business that benefits from a strong economic moat. With 53 million monthly active users and a multitude of features such as stock and Bitcoin trading, direct payroll deposits, and a Visa debit card, Cash App has become a functional substitute for traditional banking services. As a result, users would face switching costs when considering a move to a different financial institution.
Block’s growth trajectory has been impressive, with gross profit soaring from $840 million to $6 billion between 2017 and 2022, representing a compound annual growth rate of 48%. Even in the face of economic uncertainty, including rising inflation and the potential for a recession, Block continues to expand rapidly. In the first three months of 2023, Square’s gross profit increased by 16% year over year to $770 million, while Cash App’s gross profit surged by 49% to reach $931 million.
The company’s management team, led by co-founder and CEO Jack Dorsey and CFO Amrita Ahuja, envisions a bright future for Block, with a total addressable market of $190 billion in terms of gross profit potential. This includes $120 billion for Block and $70 billion for Cash App, providing ample room for expansion. By introducing new features and exploring new markets, Block has positioned itself to capitalize on its growth opportunities.
Considering Block’s strong economic moat, promising growth prospects, and its current undervalued status, there are compelling reasons for investors to take notice. With a focus on providing informative and unbiased news, we present this analysis for those seeking potential investment opportunities.
