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Why Block Is Up Today

By James Brumley – Jan 11, 2022 at 3:55PM

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Traders may be latching into a compelling headline, but shares of the fintech were ripe for at least a small bounce regardless.

What happened

Shares of Block (SQ -0.84%) -- the fintech company formerly known as Square -- were up by a little more than 3.5% as of 3:18 p.m. ET Tuesday. That move extended a rebound that started to take shape on Monday, seemingly prompted by Block's growing interest in developing a Bitcoin (BTC 0.63%) mining chip. The actual prod for this newfound bullishness, however, may actually be bigger and more nuanced, as well as non-permanent.

So what

There was a time not too long ago when Block could do no wrong in investors' eyes. Shares of the digital-payment middleman soared from under $40 in early 2020 to more than $270 by February 2021 as the world adapted to social distancing and more commerce shifted to digital platforms. However, the stock has drifted lower since then as competitors have materialized. While it was still above $260 as recently as October, on Monday, it touched a new 52-week low of $133.13.

Businessman plotting a rising, digital stock chart.

Image source: Getty Images.

That's an important detail, possibly. While a number of investors are cheering the fact that Block is moving forward with its plans to build the Bitcoin mining solutions laid out in October, based on the posting of a related job opening late last week, the bounce may have been looming anyway. The stock simply needed a nudge.

Now what

That nudge, however, isn't quite enough to base a new position in Block on.

Monday's intraday reversal and Tuesday's follow-through may well mark the beginning of a longer-term upward move. But shares are still within the confines of a near-term downtrend, and still well below last week's high. The buying volume behind the advances over these two days has also been modest, suggesting that the stock's higher price doesn't necessarily represent a majority opinion. Some would-be buyers may still be balking at Block's sky-high forward price-to-earnings ratio of 80, which should at least give you pause as well.

James Brumley has no position in any of the stocks mentioned. The Motley Fool owns and recommends Bitcoin and Block, Inc. The Motley Fool has a disclosure policy.

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