The company formerly known as Square but changed its name to Block (XYZ -3.19%) is one of the more interesting companies you'll come across. It was a market darling during the COVID-19 pandemic, known for its merchant-friendly commerce and peer-to-peer payment ecosystems.
However, the fintech company has fallen out of favor with the market. Shares now sit nearly 80% below their all-time highs.
As painful as the decline has been for those who bought at higher prices, investors should view this innovative business with a fresh perspective. Look closely; you'll see many ways the company can deliver for shareholders over the coming years.
Here are four reasons investors should buy Block like there's no tomorrow.
Image source: Getty Images.
1. Not one, but two fintech ecosystems
Block's core businesses reside in two distinct ecosystems: Square and Cash App.
Square is a hardware and software ecosystem that allows merchants to operate almost every aspect of their business, from payment terminals to applications for inventory management, payroll, loyalty programs, and more. Cash App is a digital finance platform rooted in peer-to-peer payments that has expanded into basic banking, investing, borrowing, and tax filing.
In 2024, the Square ecosystem had over 4 million sellers and processed over $228 billion in payments across 5.2 billion transactions. Meanwhile, Cash App had approximately 57 million monthly users at the end of last year.
These ecosystems develop network effects and become more powerful as they grow. That helps retain users, who generate more value for Square, which the company measures as gross profit, as they use these ecosystems more frequently.
Investing sometimes boils down to finding a company with a good mousetrap, and Block has two.
XYZ Gross Profit (TTM) data by YCharts
Want to see these in action? Check out Block's virtually uninterrupted gross profit growth over the years. Despite a global pandemic that turned the world's economy upside down, Block's gross profit has quadrupled since 2020 without a single decline.
2. A massive addressable market with vast monetization opportunities
Block's user growth has slowed over the past two years, which isn't ideal, but it's worth considering how competitive the fintech space can be.
The good news is that the fintech market is massive. Research by Market Research Future estimates the fintech industry will grow from $209.8 billion last year to over $550 billion by 2035. Block has positioned itself in multiple fast-growth niches, including digital banking, blockchain technology and cryptocurrencies, and buy now, pay later loans.
Block's ecosystems have such wide footprints that gross profit continues to grow at an impressive clip. Management is guiding for 12% gross profit growth in 2025, and I wouldn't be surprised to see sustained double-digit growth beyond this year.
3. Block offers Bitcoin exposure with less risk
The company has modeled its entire brand and corporate identity around the global digital economy, so it's unsurprising that Block is involved with Bitcoin. Block owns Bitcoin on its balance sheet, and Cash App users can buy and sell it, too.
Cryptocurrencies are speculative investments and still hotly debated in the investing community. What's nice about Block is that it offers an indirect way to invest in Bitcoin's long-term potential without owning it yourself.
If Bitcoin eventually becomes a cornerstone of the digital economy, Block and its shareholders will benefit. If not, Bitcoin represents a small portion of the company. Block currently owns 8,584 BTC, valued at approximately $917 million.
4. The stock's valuation has become compelling
Stock market bubbles, like what zero-percent interest rates caused in 2020 to 2021, can hurt when they pop. Block got caught up in that, and the stock still feels the hangover years later.
Block's enterprise value peaked at about $127 billion in late 2021, and the company generated a $4.4 billion gross profit that year, a ratio of 28.8. Today, Block's enterprise value is roughly $29 billion, just 3.2 times the company's gross profit ($8.9 billion) in 2024.
The stock is down, but fundamentally speaking, Block's valuation is far more attractive than it was just a few years ago.
Sentiment impacts stock prices in the short term, but if Block's gross profit grows, it should eventually drive the stock higher. You can't predict the timing of these things, but I'd say the odds are pretty good that Block's next five years will be far more lucrative for shareholders than the past.
