Shares of fintech giant Block (SQ 2.63%) -- the artist formerly known as Square -- dipped this morning and were trading down 2.5% as of 9:50 a.m. ET.
Tuesday morning, the investment bank Mizuho lowered its price targets for three of the biggest players in the buy now, pay later (BNPL) sector, including Block.
Taking aim at the BNPL sector of the fintech market, Mizuho cut its price targets on PayPal, Affirm, and Block. As the analyst explained in a note covered by StreetInsider.com today, "Our research uncovers several potential risks [to BNPL stocks] that we believe are not fully understood."
The Mizuho note said the following:
- Government data across lower-income brackets shows many users have "limited financial flexibility," and are carrying as much as $1,700 in credit card debt on top of their BNPL obligations.
- "Delinquencies and charge-offs are rising across many BNPL operators."
- More than 50% of shoppers choosing BNPL to pay for their purchases over time "have missed at least one payment."
- And BNPL providers such as PayPal, Affirm, and Block may be unaware of the full extent of the problem among their specific customers, because 40% of BNPL users "borrow through multiple apps," the note said.
Block suffered the deepest cut of the three BNPL players today, with Mizuho lowering its price target on the shares 25% to $285.
All that being said, there's no need for Block investors to panic just yet. While the analyst cut price targets across the board (on Block most of all), it's worth pointing out that at a $285 target, Mizuho still thinks Block stock retains significant upside. Indeed, if the analyst's projection is correct, Block stock could rise as much as 63% over the next 12 months!
Mizuho wants investors to be aware of a growing risk, but it remains positive on Block stock regardless.