Block sell-off presents buying opportunity with improving profitability and Bitcoin halving on horizon

The pullback in Block Inc (NYSE:SQ)‘s share price is a buying opportunity, according to analysts at Berenberg Capital Markets who have initiated coverage on the FinTech company with a ‘Buy’ rating and a US$75 price target.

Block shares traded at US$54.15 shortly after the market opened on Thursday.

The analysts noted that Block’s share price has fallen by about 34% since the start of August, compared to a 4% decline in the Nasdaq, after management warned of slowing gross profit growth in a July update.

“We believe the pullback in Block’s share price represents an attractive entry point for the stock, which is trading at the lowest price-to-forward sales ratio (1.1 times the consensus estimate of 2025 financial year sales) since the company went public in November 2015,” they wrote in a note to clients.

The analysts believe Block’s improving outlook for profitability reflects its significant operating leverage despite investor criticism for its lack of bottom-line profitability in recent years.

“Management’s sharpened focus on controlling the growth of Block’s operating expenses has enabled it to demonstrate the significant operating leverage inherent in its business,” they wrote.

“We believe Block has reached an inflection point regarding its profit power, and that it has plenty of runway for increased profitability.”

According to the analysts, Block is poised to benefit from the integration of its Cash App and Seller ecosystems.

“Owing to the peer-to-peer nature of Block’s Cash App, it should continue to benefit from network effects as it grows, and we believe the app’s function as a bank account substitute is likely to become even more relevant if more banks adopt a defensive stance and lower-income consumers are shut out of the traditional banking system,” they wrote.

“At the same time, Square’s ecosystem should benefit as it becomes increasingly integrated with Cash App.”

The “meaningful” correlation between Block’s share price and the price of Bitcoin at 0.61 also bodes well for the company ahead of the upcoming Bitcoin halving, the analysts added.

“Block, in addition to facilitating the buying and selling of Bitcoin on Cash App, held $244.6 million of Bitcoin on its balance sheet as of June 30,” they wrote.

“As such, the potential boost to the price of Bitcoin from the halving expected in April 2024 – the reduction by half of the rewards provided to Bitcoin miners, which limits supply – could also support Block’s stock price.”

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