What happened
The share price of Block (NYSE: SQ) dropped 11.4% in the month of April, according to S&P Global Market Intelligence. As of May 3, Block is trading at about $59 per share, down roughly 8% year to date.
The major market indexes were all up slightly in April as the S&P 500 climbed 1.5%, the Dow Jones Industrial Average rose 2.5%, and the Nasdaq Composite ticked up 0.1% last month.
So what
Block is a fintech that runs Cash App as well as Square, which has a suite of products for merchants and sellers. In late March, Square was the subject of a report by short-seller Hindenburg Research, which accused it of inflated metrics, among other charges.
The stock price plummeted in the days that followed, and that carried over into April, even though Block officials, along with some analysts, called the accusation misleading and inaccurate.
Image source: Getty Images.
A few analysts lowered their price targets for Block in April, including Keefe Bruyette, which downgraded it to market perform and lowered the price target from $90 to $75 per share. The Keefe Bruyette analysts cited increasing regulatory risks as well as rising competition.
The stock price fell later in the month after one of those competitors to the Square business, Clover, owned by Fiserv, posted strong first-quarter numbers. Clover saw 22% revenue growth year over year, increased its payment volume growth, and increased its value-added services market penetration.
Mizuho analyst Dan Dolev said the Clover numbers require Square to at least maintain its previous growth rates, but he thinks that's unlikely, reported The Fly.
Now what
Block will release its much-anticipated first-quarter results on Thursday, May 4.
Cash App has been Block's cash cow and should continue to drive revenue, but investors should watch for any potential deceleration in the Square merchant business.
Most analysts still rate Block as a buy, with a consensus price target of $95 per share, which is a 60% increase over current levels. The once highly overvalued stock has come way down in valuation, with a forward price-to-earnings ratio of 36 -- yet it was still unprofitable last year. I will view this stock with caution until it becomes consistently profitable.
