The S&P 500 (^GSPC 0.40%) is generally recognized as the most comprehensive measure of the U.S. stock market, made up of the 500 leading publicly traded companies in the country. Given the broad reach of the businesses that make up the index, it is regarded as the most reliable benchmark of overall stock market performance.
To be considered for admission to the S&P 500, a company must meet the following criteria:
- Be a U.S. company
- Its market cap must be at least $20.5 billion
- Shares must be highly liquid
- Have at least 50% of its outstanding shares available for trading
- Must be profitable based on generally accepted accounting principles (GAAP) in the most recent quarter
- Must be profitable during the previous four quarters in aggregate
Block (XYZ 1.17%) is the latest addition to the S&P 500, added to its ranks on July 23. That makes it one of only six companies to make the grade so far this year. Since its IPO in late 2015, Block has easily outpaced the market, generating gains of 510%, compared to a 206% increase for the S&P 500 (as of market close on Wednesday). The stock price gains have been fueled by an ever-expanding fintech ecosystem, as its revenue has soared 1,640%, while net income has jumped 867%.
Yet, despite the stock's market-beating gains and the company's strong track record navigating the fluid fintech space it helped pioneer, many believe Block is just getting started. Let's examine the opportunity ahead and why Wall Street believes the stock is a buy.
Image source: Getty Images.
A Square peg in a round hole
Block, formerly Square, made a name for itself by pioneering mobile payment processing solutions and point-of-sale systems for small businesses. From those humble beginnings, the company now offers a growing suite of tools for entrepreneurs and consumers alike, including payment processing, point-of-sale systems, business loans, digital retail, loyalty programs, marketing, digital wallet, and -- mostly recently -- consumer loans.
At the heart of Block's expanding ecosystem is its two-pronged approach: Square Business, which provides services to merchants, and Cash App, which caters to consumers. The seamless integration between the two segments helps spin the flywheel that has been key to Block's success.
It was also among the first major public companies to add Bitcoin to its balance sheet, making its initial purchase in October 2020. Block has thus far spent roughly $261 million and currently holds 8,584 Bitcoin, worth roughly $1.03 billion. The company also announced plans to begin accepting Bitcoin as a payment method later this year.
Despite a highly competitive landscape, Block continues to expand its role as one of the leading fintech providers.
Paint by numbers
You don't have to take my word for it. Despite a backdrop of economic uncertainty caused by persistent inflation and tariffs, Block's recent results tell the story.
In the first quarter (excluding Bitcoin), revenue of $3.47 billion grew 8% year over year, while gross profit of $2.29 billion climbed 9%. Operating income of $329 million rose 32%, resulting in adjusted earnings per share (EPS) of $0.56, an increase of 19%. Unfortunately, investors were looking for better gross profit, which sent the stock lower -- but the results were solid nonetheless.
Block's performance was fueled by gross payment volume (GPV) that grew 7.2% (8.2% in constant currency). Cash App did its part, increasing user engagement, as gross profit per monthly active user grew 9%.
Wall Street is bullish
Block lowered its guidance earlier this year in response to the continuing uncertainty, but Wall Street remains bullish. Of the 47 analysts who covered the stock thus far in July, 35 -- or an impressive 75% -- rate it a buy or strong buy.
TD Cowen analyst Bryan Bergin is a longtime Block bull, maintaining a buy rating and a $115 price target on the stock, which represents potential upside of 44% compared to the stock's closing price on Wednesday. While he acknowledged the macroeconomic headwinds and a slow start in 2025, he believes that the company is on track for continued improvement in the back half of the year.
Bergin also points to improvements toward achieving the Rule of 40. The oft-cited metric evaluates growth in relation to profits, and Block is looking to make the grade by the end of 2025 or early 2026.
Despite all that potential, Block is remarkably cheap. The stock is currently selling for just 19 times trailing-12-month earnings and 2 times sales.
Block's inclusion in the S&P 500 is an important milestone. It's not only a testament to the company's position in an evolving industry, but also the growing adoption of Bitcoin into the mainstream.
Given its long track record, strong secular tailwinds, and Wall Street's bullish take, I would submit that Block is a buy.
