The last several years have been very interesting for investors to watch. For instance, some companies experienced a surge in demand during the pandemic, only to see those gains slow down as the economy normalized. This resulted in market sentiment that registered wild swings.
One fintech stock in particular ended up being a clear portrayal of this volatile trend. And right now, it trades 77% below its all-time high, which was established in August 2021. Continue reading to learn more about this business and why it could surge before Wall Street notices.
Image source: Block.
This fintech stock trades at a compelling valuation
The main reason why this business should be considered a sleeper pick is because of its valuation. Shares of Block (XYZ 2.80%) currently trade at an attractive EV-to-EBIT ratio of 15.1. In a market environment in which valuation is a leading concern, this opportunity stands out.
All else equal, investors should want to pay a lower valuation multiple as opposed to a more expensive one. This introduces a margin of safety should your expectations about a company's future results end up being too optimistic. Allocating capital in this manner helps to minimize the downside risk.
Block is a growing and profitable business. The Square segment posted 9% year-over-year gross profit growth in the third quarter. Cash App, with its 58 million monthly active users, saw gross profit rise at an even better 24% during the third quarter. And the company's operating income has been soaring.
NYSE: XYZ
Key Data Points
Bitcoin is an underappreciated focus
The main offerings of Square and Cash App deservedly get most of the attention from the investment community. As a result, the company's Bitcoin (BTC 2.21%) initiatives can easily be overlooked. Investors interested in Block should understand what's going on.
I believe Bitcoin presents the business with underappreciated upside. CEO Jack Dorsey has been publicly bullish on Bitcoin since 2021, with his belief stemming from the view that the internet will need a native currency. By being digital, decentralized, and scarce, Bitcoin is the best candidate to fulfill that purpose.
Block's Bitcoin projects span a wide range of activities. The company sells a Bitcoin self-custody wallet called Bitkey. It offers a suite of cryptocurrency mining equipment under the Proto moniker. Cash App users can trade Bitcoin. And Square sellers are now able to accept Bitcoin payments.
Should Bitcoin's price start to quickly rise, it can lead to a rapid positive shift in market sentiment. The investment community could start to view Block as an even more forward-thinking enterprise that's better positioned than its peers when it comes to Bitcoin. At that time, the valuation might reach a less attractive entry point.
