Investors might be missing out on some potential positive catalysts for Block Inc. shares, according to Barclays analyst Ramsey El-Assal. He believes that the market is too focused on the pressure in Block’s seller business, overlooking the profit opportunities in the overall business.
El-Assal suggests that the lack of GAAP profitability has made Block less appealing to profit-focused investors. However, as the company’s attractive GAAP valuation becomes more apparent, he expects longer-duration investors to reconsider their stance.
SPX Inclusion and Positive Catalysts
El-Assal also points out that there is a good chance Block will meet the eligibility requirements for inclusion in the S&P 500 within the next 18 months. This would require the company to demonstrate four consecutive quarters of GAAP profits, as well as GAAP profitability in the most recent quarter prior to potential index inclusion.
The analyst emphasizes that historical data shows index inclusion to be a positive catalyst for stocks, potentially boosting Block’s stock by more than 50%.
It remains to be seen how Block Inc. will fare in the coming months, but with promising profit opportunities and the possibility of index inclusion, investors may want to take a closer look at this stock.
Block’s Management Focuses on Profitability
Block’s management is making profitability a top priority, with a positive outlook on expanding margins. According to El-Assal, key drivers of margin expansion include reductions in hiring, overhead expenses, and improved partnership economics resulting from the company’s arrangement with Marqeta Inc.
Deceleration in Hiring Metrics
Analyzing the company’s job-posting data revealed a further deceleration in hiring metrics during the latest quarter. El-Assal expects Block to target an even slower rate of headcount growth than its current goal of less than 10% growth.
El-Assal maintains an overweight rating on the stock, with a target price of $95. As of midday Thursday, the stock was trading at $45.88.
Seaport Research Partners analyst Jeff Cantwell, however, is less optimistic. He initiated coverage of Block shares with a neutral rating, believing that the company’s current valuation reflects a loss of its leadership position in fintech.
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