Block Claws Back Above 50-Day Line. Is Square Stock A Buy?
REINHARDT KRAUSE08:59 AM ET 08/19/2024
Some technical ratings for Square parent Block (SQ) have improved. And, Square stock has clawed back above its 50-day moving average. Both Cash App growth and the direction of the merchant business remain key to SQ stock. There's also cryptocurrency Bitcoin and the Afterpay consumer financing business.
In its core businesses, Square aims to build a two-sided digital payments ecosystem, with products designed for both merchant sellers and consumer buyers.
For the June quarter, Block reported EPS that topped estimates while revenue came in light. Gross profit and adjusted EBITDA beat Wall Street targets.
For 2024, the company raised its gross profit outlook to $8.89 billion, up from prior $8.78 billion. The company said Afterpay CEO and co-founder Nick Molnar will lead a new a centralized sales function.
"Square has become re-focused on improving day-to-day execution, especially in the Square (formerly known as Seller) business to drive Square gross payment volume re-acceleration," said Bank of America analyst Jason Kupferberg in a report. "This remains the most critical metric for shares, and we believe that newer product/go-to-market initiatives should start bearing fruit in 2025."
Meanwhile, Square stock has retreated nearly 15% in 2024. Shares hit a 52-week low on Aug. 5.
While Block's valuation has dropped, IBD doesn't put much weight on P/E ratios and other valuation metrics. On the other hand, here are some time-tested trading rules.
Square Stock: Cash App Growth
Also, Square faces growing competition on many fronts. Further, Block in 2023 replaced the head of its merchant Square business, Alyssa Henry, with Block and Twitter founder Jack Dorsey.
Also, some investors fear potential weakness in Square's point-of-sale business amid growing competitive pressures from Toast (TOST) in restaurants and Fiserv's (FISV) Clover unit generally.
The Square Cash App helps individuals manage money, buy stocks and cryptocurrency, and more. New banking services may be key to Cash App's growth.
Block aims to bridge the Cash App and merchant ecosystems with consumer financing services from Afterpay. Buy now, pay later firm Afterpay competes with Affirm Holdings (AFRM) and many others.
The Square Cash App, a peer-to-peer money-transfer service, competes with PayPal's Venmo, Zelle and others.
In late 2021, Square changed its name to Block, while retaining the ticker SQ. Meanwhile, the move reflected the company's commitment to blockchain technology, which underpins cryptocurrency.
Block has aimed to build infrastructure that enables bitcoin-based commerce on its merchant platform. In addition, Square created a new business line to help developers build financial services products focused on Bitcoin.
In January, Square said its Bitcoin digital wallet was available for Cash App users in 95 countries.
SQ Stock: Afterpay Acquisition
Square and Marqeta (MQ) in 2023 said they have renewed their transaction services agreement for Cash App and Afterpay.
In 2023, Block sued Visa (V) and Mastercard (MA) on antitrust grounds, alleging that both credit card networks are overcharging U.S. merchants through high cost interchange and merchant location fees.
In the event a U.S. recession eventually hits, one question is how resistant Square will be to a business downturn. The relatively low income levels of Square's customer base is one factor for investors to consider if the U.S. economy weakens, analysts say.
In a move to boost its Cash App business, Square in early 2022 closed the acquisition of Australia-based consumer lending startup Afterpay. "Buy now, pay later" (BNPL) companies such as Afterpay compete with credit card networks.
In another deal, Square acquired a majority stake in Jay-Z's Tidal music streaming service for $297 million in cash and stock.
Block Stock: Competition Heats Up
In 2023, Square management outlined a new long-term investment framework, which will put the company on the road to higher quality earnings under generally accepted accounting principles, often known as GAAP.
One bright spot: Square holds $5 billion on its balance sheet. In addition, Square stock uses a dual class structure of common stock, which gives insiders more voting power.
With multiple products, SQ stock faces stiff competition in both consumer financial apps and the small business market. Rivals include PayPal Holdings (PYPL), First Data's (FDC) Clover unit, Shopify (SHOP), merchant acquirers, and well-funded startup Stripe.
For merchants, Square makes credit-card readers that plug into mobile devices. Its Square Capital division provides loans to sellers.
With roots in serving such micro-merchants as food trucks and farm-stand vendors, Square has moved "upmarket," targeting larger businesses.
In addition to selling credit-card readers, Square provides software for point-of-sale and back offices in order to manage inventory and other tasks.
Square recently focused on software products that can be used across many industries, such as invoicing, payroll and marketing. It also aims to integrate its payment tools into e-commerce platforms.
Is Square Stock A Buy Right Now?
Square's Relative Strength Rating stands at 42 out of a best-possible 99, according to IBD Stock Checkup. The best stocks tend to have an 80 or better RS Rating.
The relative strength line, the blue line in the chart above, compares a stock's price performance with that of the S&P 500. A downward-trending RS line tells you the stock is underperforming the general market.
Block stock holds an IBD Composite Rating of 77 out of a best possible 99.
SQ stock, meanwhile, holds an Accumulation/Distribution Rating of C-minus. The rating runs from a best-possible A+ to a worst-possible E. The rating analyzes price and volume changes in a stock over the past 13 weeks of trading.
As of Aug. 19, SQ stock is not actionable. It needs to form a proper base.
AI
Market Data 
Markets 
