Block stock price has been in a strong bearish trend in the past few months as investors worry about the company’s growth prospects. SQ shares are trading at $63.50, which is significantly lower than its all-time high of $289.
The rise of Square
Block, formerly known as Square, is a fintech company that was started by Jack Dorsey, who also founded Twitter.
He started the company with the goal of helping small businesses receive payments. In the past few years, the firm has expanded its solutions to several more industries.
For example, Block owns Cash App, the biggest peer-to-peer payment company in the world. It also owns Square Capital, a product that provides loans to companies that it serves.
Further, Block has recently become one of the biggest players in Buy Now Pay Later (BNPL) industry. It did that by spending over $29 billion to acquire AfterPay, a leading player in the industry.
Block is also in the music streaming industry. It moved into the sector by acquiring a large stake in Jay Z’s Tidal. It is also a leading player in the cryptocurrency industry.
At its peak, Block was valued at over $125 billion, making it one of the biggest players in the finance industry. This situation happened as the company kept on growing at double digits. For example, its annual revenue jumped from $2.2 billion in 2017 to more than $17.66 billion in 2021. It also became profitable in 2021.
The fall of Square
The Block stock price has been in a strong downward trend in the past few months. There are several reasons why this has happened. First, the sell-off is in line with the performance of other fintech stocks.
For example, PayPal has seen its total market cap crash from over $310 billion in 2021 to the current $80 billion. Similarly, other fintech companies like Remitly and Shift4 Payments have seen their shares collapsed by over 70% from their all-time high.
Privately owned companies have also seen their valuations crumble. Stripe, a Square competitor, saw its valuation crumble by 28%. Similarly, Klarna, a player in the BNPL industry, recently raised capital at a $7 billion valuation. At its peak, the company was valued at over $45 billion.
Block stock price has also crashed because of its exposure in the BNPL sector. As I wrote in my Zip share price analysis, the industry is facing significant headwinds as interest rates rise. Competition and delinquencies have also risen substantially in the past few months.
Further, the SQ stock price has tumbled because of the ongoing cryptocurrency winter. The company is highly exposed to the industry because it used to process crypto transactions worth billions of dollars.
Is SQ a good investment?
From a fundamental side, I believe that Block is a good investment for several reasons. First, the company’s valuation has become more favorable than where it was at its peak. At the time, investors were giving the company a price-to-sales multiple of 13.35x. Today, the multiple has declined to less than 2.
Second, Block has a strong market share in key industries that will continue growing. While competition is rising, the company typically sees little churn. This means that its growth will continue doing well in the coming months.
Third, I believe that we are simply in a market cycle that has become unfavorable for tech stocks. Historically, these cycles don’t last forever. Therefore, there is a likelihood that Block will be among the firms that will lead the recovery.
Block stock price forecast
The daily chart shows that the SQ share price has been in a strong bearish trend in the past few months. Now, the stock has moved below the 25-day and 50-day moving averages, which is usually a bearish sign.
A closer look shows that the stock has formed a falling wedge pattern that is shown in blue. This pattern is usually a bullish sign. Therefore, with the wedge nearing its confluence level, there is a likelihood that it will soon have a major bullish breakout.