Financial powerhouse Block (XYZ) has disappointed the market during the past few years, and that's a trend that hasn't changed this year. Block stock is down 11% year to date, even as the market makes a rebound and the S&P 500 is up 10%.
However, it has been climbing back, and it's up 30% during the past three months (as of Aug. 14). That's a decent surge in a short amount of time, and it's been fueled by its recent inclusion in the S&P 500 and a strong economy.
About two-thirds of Wall Street analysts covering Block rate it a buy, and they have a median target price of $95 during the next 12 to 18 months, 27% higher than today's price.
Is Block stock finally turning around? And can it set you up for life?
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Exciting financial services
Exciting might not be a word you would normally associate with financial services, but Block has disrupted standard financial platforms with an innovative platform that provides a much better experience. It started out with the square-shaped card reader that could attach to a smartphone and accept payments, from where it took its original name, Square. It's rolled out distinct and easy-to-use solutions since then.
Today, it has two separate ecosystems that serve different categories. The Square name remains for the sellers' business, providing a unified, digital management platform for small businesses. Cash App serves individuals with a broad array of personal services like digital payments, bank accounts, and credit cards. What unites these segments is their reliance on digital technology and innovation, and businesses and personal users alike are drawn to its services, which simplify what could be burdensome financial management.
It's always adding new services and tools to its platform. On the business side, it just launched new point-of-sale (POS) devices that are the size of a smartphone but come with all the tools of a standard POS device. In Cash App, it's expanding its personal loan program with AI-driven credit evaluation.
Mixed performance
Block had been growing quickly and creating shareholder value for years, but it got stuck along the way, and it's been several years since Block stock has wowed investors. There are a number of factors contributing to the lack of enthusiasm. Growth has decelerated, profit went up in smoke, and the company began to include alternative products like Bitcoin as part of its model. For some investors, it looked like the innovation was going a bit too far. Block counts Bitcoin trading as revenue, and that has affected its financial statements both positively and negatively over the past few years.
Things might be changing. Revenue increased 9% year over year in the second quarter, with growth in both of its segments. Operating income increased 28%, and the adjusted operating margin widened from 18% last year to 22% this year. Management's objectives are to keep up the growth while driving profitability, powered by its Rule of 40 principle, which aims for revenue and growth and some profit margin metric to combine to at least 40. It feels confident about its chances going into 2026.
The opportunity
With the expansion of its credit business, fueled in part by success with its acquisition of buy now, pay later brand Afterpay, Block is moving toward more standard financial services, but done its own way. The lending business opens up another huge opportunity, but it puts Block into competition with other companies that are already using AI for credit evaluation, partnering with companies like Upstart Holdings and Pagaya Technologies. According to Upstart, there's an addressable market of $3 trillion in loan originations.
Today, Block has trailing 12-month revenue of nearly $24 billion. As Block rolls out new products and wins new business, there's a strong chance that it will continue to grab market share. If it can keep up its new efficiency and increase profit along with sales, it will be in solid shape.
From there, it could grow quickly and reward investors. However, there's risk from a few perspectives, including its slowdown and its focus on Bitcoin. In other words, even though there's reason to suspect it can harness the opportunity and be something great, I don't have complete confidence in it right now. I do think there's a chance that Block can soar and be a part of a portfolio that can set you up for life, but I'd be cautious about thinking it can do that on its own. I would recommend a different candidate if you don't have a high tolerance for risk.
