This report is an updated version of the report published on 7 November 2024 at 1:05 PM AEDT.

Block, Inc. (ASX: SQ2) 

Based in the US, Block, Inc. (ASX: SQ2) is a financial services and digital payments company with offices across the globe. Founded in 2009, the ASX-listed company has two reportable segments, Square and Cash App. Square is a cohesive commerce ecosystem and Cash App is an ecosystem of financial products and services.

Recommendation Rationale – SELL at AUD 119.17

• Trading Around Resistance: SQ2’s share price surpassed its R2 level, recommended on 27 September 2024.
• Overvalued Multiples: On a forward 12-month basis, the stock is trading at an EV/EBITDA multiple of 12.6x vs industry (Industrials) average of 9.5x.
• Rising Costs: For 2QFY24, product development costs rose by 2.7% year-on-year. Long-term debt increased from USD 4.12bn as at 31 Dec 2023, to USD 5.1 bn as at 30 June 2024. These factors expected to put downward pressure on margins in the coming months.
• Emerging Risks: SQ2 has integrated cryptocurrency services. The inherent volatility in cryptocurrency markets can pose risks to its financial stability and customer engagement.
  

SQ2 Daily Chart

Valuation Methodology: P/E Approach (FY Dec'25E) (Illustrative)

Stock might trade at some premium to its peers, considering the company has raised its guidance for gross profit and adjusted operating income for FY24, improvements in profit margins through operational efficiencies and cost management in recent quarters, and other factors. For valuation, few peers like SmartPay Holdings Ltd (ASX: SMP), Tyro Payments Ltd (ASX: TYR), and EML Payments Ltd (ASX: EML) have been considered. Considering that the stock has surpassed its R2 level, share price movement, other risks associated with the business, and downside indicated by the valuation, the share price can face consolidation at the current levels. Hence, a ‘Sell’ recommendation is given on the stock at the current market price of AUD 119.17, at 10:15 AM AEDT, as of 7 November 2024.

Markets are trading in a highly volatile zone currently due to certain macro-economic issues and geopolitical issues prevailing geopolitical tensions. Therefore, it is prudent to follow a cautious approach while investing.

Note 1: Past performance is neither an indicator nor a guarantee of future performance.

Note 2: The reference date for all price data, currency, technical indicators, support, and resistance levels is 7 November 2024. The reference data in this report has been partly sourced from REFINITIV.

Note 3: Investment decisions should be made depending on an individual's appetite for upside potential, risks, holding duration, and any previous holdings. An 'Exit' from the stock can be considered if the Target Price mentioned as per the Valuation and or the technical levels provided has been achieved and is subject to the factors discussed above. 

Technical Indicators Defined: -

Support: A level at which the stock prices tend to find support if they are falling, and downtrend may take a pause backed by demand or buying interest.

Resistance: A level at which the stock prices tend to find resistance when they are rising, and uptrend may take a pause due to profit booking or selling interest.

Stop-loss: In general, it is a level to protect further losses in case of any unfavourable movement in the stock prices.