If you've been a longtime investor in Block (XYZ 0.79%), it's been an extremely volatile journey. Shares of the innovative financial services company soared over 2,000% from their initial public offering in November 2015 to their peak in August 2021. However, slower growth and subdued market sentiment have pushed shares lower since, as they trade 80% below that record high (as of May 21).
Despite the choppy performance, Block deserves a closer look from investors. Should you buy this fintech stock right now?
Image source: Block.
Dealing with the macro environment
The investment community wasn't pleased with Block's financial performance for the first quarter (ended March 31). Shares immediately tanked 20% following the announcement.
For starters, Block is posting slower growth. Gross profit increased by just 9% for Square, its merchant-facing segment. For Cash App, gross profit was up by only 10%. Both of these gains showed a deceleration from previous quarters. It also doesn't boost confidence knowing that Cash App ended the quarter with 57 million active users, a figure that has stayed the same for at least the past five straight quarters.
Gross payment volume in Q1 totaled $56.8 billion, lower than analyst expectations. What's more, management provided guidance that came in below Wall Street estimates. Block expects gross profit to come in at just under $10 billion for the full year.
Square serves small businesses, while Cash App aims to be the top financial app for U.S. households making up to $150,000 in annual income. Specifically focusing on these types of customers, as opposed to those who are larger or make more money, exposes Block more to changing macro conditions.
The leadership team has a positive view, though. "We remain confident in our ability to accelerate Block's gross profit growth in the second half of 2025 and beyond," the Q1 2025 shareholder letter reads. Optimism surrounds a new Cash App Borrow product. Marketing spending will also increase 50% sequentially in the second quarter.
For what it's worth, Block's profitability has been improving noticeably. Adjusted operating income is projected to be $1.9 billion in 2025, up from $1.6 billion last year and $351 million in 2023. The business is finally showing an intense focus on operational efficiencies, which investors should appreciate.
Betting on Bitcoin
Investors considering Block must understand how much Jack Dorsey is focused on Bitcoin. The co-founder and CEO of the business believes that working on advancing the leading cryptocurrency's utility is an important use of time.
The company has already released a hardware Bitcoin wallet called Bitkey. There is a plan to introduce its first mining chips later this year. Cash App already allows users to buy and sell Bitcoin, and Block owns more than 8,500 units of Bitcoin on its own balance sheet.
Knowing that these initiatives are taking place should affect your perspective. If you aren't bullish on Bitcoin, then it's probably not a good idea to buy shares of Block.
Block is risky, but the valuation is compelling
You need to keep the risks in mind. Competition can't be ignored, both on the individual side with Cash App, and when it comes to merchants with Square. Plus, a possible recession could seriously hurt the performance of Square and Cash App, as it can pressure spending activity.
However, the current valuation might be too difficult to ignore. As of this writing, shares trade at a forward price-to-earnings ratio of 19.4. This represents a 12% discount to the broader S&P 500 index.
Investors who can appreciate the risk of owning Block, but who also understand the positive attributes this business possesses, should consider starting a position in the stock. It doesn't have to be a big stake. Maybe it makes sense to allocate 1% of your portfolio to Block for now, to get more comfortable with the company and possibly increase that position over time.
