Since their initial public offering in November 2015, shares of Block (SQ 1.53%) are up 308%. That result is fantastic when compared to the S&P 500's 115% gain over the same period. An investor who put $10,000 into Block at that time would be sitting on a balance of just under $41,000 right now, which is definitely encouraging. 

But it's not all good news, as shares are now down 81% from their peak price set in August 2021. For such a disruptive and interesting company, perhaps it will be beneficial to look at Block's history, its latest financials, and whether now is a good time to buy the stock on the huge dip. 

Two budding ecosystems 

Block, formerly known as Square, was founded in 2009 by Jim McKelvey and Jack Dorsey, with the primary goal of allowing small merchants to accept card payments directly on their phones.

This seems like an obvious breakthrough in hindsight, but the opportunity was there because large banks and payment processors largely ignored smaller businesses when it came to cashless transactions. After all, they just weren't a group that was financially viable to serve. Their relatively tiny sales volumes didn't justify selling them services.

This resulted in the creation of a thriving fintech company, now called Block, to help spearhead the secular trend of digital payments.  

Today, Block is a beast in the industry. Its Square segment focuses exclusively on merchants, providing them with a range of services -- like working capital loans, point-of-sale terminals, and invoicing tools -- to help them better run their businesses.

By being a mission-critical infrastructure provider, a valid argument can be made that Square benefits from high switching costs: Once merchants are locked in, they are probably very reluctant to switch service providers. 

Square handled $54.2 billion in gross payment volume in the three-month period that ended June 30, up 12% year over year. And gross profit for the division jumped 18%. Management believes Square's total addressable market (for gross profit) is worth $120 billion. 

The other primary business line is Cash App, a personal financial app that allows consumers to handle basic banking services from an easy-to-use mobile interface. The segment's ambitions match that of Square, which are to innovate where the big banks didn't or couldn't. Gross profit for Cash App soared 37% in the latest quarter, and the service now counts an impressive 54 million monthly active users. 

Cash App initially draws in users because it also operates a peer-to-peer payments network, so its value to all users increases over time. This also means that customer acquisition costs are kept low, especially when compared to a traditional bank. 

The ultimate goal 

Both of these segments are successful on their own, but the real opportunity relates to how Block can better connect Square and Cash App. Cash App Pay, which allows users to pay at Square merchants directly with their balances, is one way. Another is buy now, pay later, a product that Block acquired with the purchase of Afterpay. 

Connecting the two sides can be a boon financially because it means that money never leaves Block's network, making it a closed-loop payments network, akin to American Express or Discover Financial Services. And this results in Block keeping all of the fees anytime a transaction occurs. This ultimate outcome is a long way off, if it's even realistic, but it gives investors an idea of the long-term opportunity. 

What should investors do? 

With product offerings that are clearly in demand by consumers and merchants, coupled with strong growth prospects, it's difficult to pinpoint why the stock has been down so much in the past couple of years. Rapidly rising interest rates and waning investor enthusiasm for growth tech stocks might be the main culprits. 

Right now, shares trade at a price-to-sales ratio of 1.6, which is about as cheap as they've ever sold for. There's a lot to like about Block, so the current valuation presents a worthwhile buying opportunity for investors.