The market is currently littered with the debris of once high-flying growth stocks. There have been savage pullbacks for many over the past year. Block (SQ) is one such name to have suffered at the hands of rotation, while also being hampered with some very tough comps due to the elevated success the company saw at the height of the pandemic.
Since the reopening, however, it has been a different story, and now RBC’s Daniel Perlin thinks it’s time to make some adjustments to his SQ model.
“We are incorporating management’s most recent commentary around November Cash App gross profit growth coming in below 90% on a 2yr stack and further tweaking down Q1/22 Cash App gross profit to reflect a more challenging comp,” said the 5-star analyst.
As such, Perlin reduced the respective standalone adjusted revenues for FY21, FY22, and FY23 from $5.2 billion, $6.2 billion, and $7.3 billion to $5.1 billion, $5.9 billion, and $6.9 billion.
Additionally, following tweaks to gross profit expectations over the same periods, there are new corresponding adj. EBITDA estimates; these drop from $1.0 billion, $1.3 billion, and $1.7 billion, respectively, to $986 million, $1.3 billion, and $1.7 billion.
Moreover, to “better reflect its peer group range,” there’s also a meaningful slash to the price target, which drops from $295 to $203. Still, there’s potential here for one-year gains of ~40%. Perlin’s rating stays an Outperform (i.e., Buy). (To watch Perlin’s track record, click here)
Amidst all the downward revisions, Perlin reminds investors his positive thesis remains unchanged. The analyst thinks that last year’s acquisition of buy now, pay later leader Afterpay – expected to close early this year – will be an excellent addition which “links SQ’s two ecosystems more meaningfully together.” Amongst the key strategic benefits of this transaction are Afterpay’s 100,000+ global merchant base which will not only enhance merchant acquisition but will “accelerate SQ’s growth with larger sellers and expand into new geographies.” The deal will also enable Afterpay customers to manage their repayments inside the Cash App, thereby expanding SQ’s peer-to-peer product offering.
So, that’s RBC’s take, what does the rest of the Street have in mind for SQ stock? The 21 analyst reviews on record breakdown to 15 Buys vs. 6 Holds, culminating in a Moderate Buy consensus rating. The average target is a more upbeat one than Perlin’s; at $273.45, the figure suggests shares will climb ~88% in the year ahead. (See SQ stock forecast on TipRanks)
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Disclaimer: The opinions expressed in this article are solely those of the featured analysts. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.