16 Most Undervalued Stocks to Buy Now

8) Block, Inc. (NYSE:SQ)

Forward P/E as of August 22: 18.94x

Number of Hedge Fund Holders: 59

Expected EPS Growth this Year: 100%

Block, Inc. (NYSE:SQ) provides payment services to merchants and related services. It also launched Cash App, a person-to-person payment network.

Block, Inc. (NYSE:SQ) targets to be on the growth path. The company’s “Rule of 40” by 2026 plan places the bar high, with gross profit and adjusted operating income targets set at ~15% and ~25% (the sum equates to 40%), respectively. Adjusted EBITDA margin of the company increased from 17% in 2020 to reach 24% in 2023.

Block, Inc. (NYSE:SQ) anticipates that figure to increase to 33% this year, with the company focusing on cutting costs instead of increasing sales. The management anticipates a combined total addressable market (based on gross profit) of $190 billion between Square and Cash App. It will utilize its typical playbook to attract customers and boost usage via the introduction of new product features and expansion in new markets.

Block, Inc. (NYSE:SQ) is expected to benefit from switching costs. The merchants who lean on Square mission-critical partners are somewhat locked in the ecosystem. Also, consumers handling basic banking needs through Cash App don’t feel like changing the providers. Apart from switching costs, the company’s network effects are also expected to drive growth. Its ecosystem has features for every business, from point-of-sale to financial support.

Analysts at Citigroup upped their price objective on shares of Block, Inc. (NYSE:SQ) from $86.00 to $90.00. They gave a “Buy” rating on 6^th May. In Q2 2024, there were 59 hedge fund holders in the company.

Baron Funds, an investment management company, released its second-quarter 2024 investor letter. Here is what the fund said:

“Block, Inc. (NYSE:SQ) provides point-of-sale technology to small businesses and operates the Cash App ecosystem of financial services for individuals. Shares gave back gains from earlier this year despite reporting strong quarterly results and raising full-year guidance. In the first quarter, gross profit grew 22% and EBITDA grew 91%, both exceeding Street expectations. Given the strong start to the year, second-quarter guidance of 16% to 17% gross profit growth may have disappointed some investors. Management remains committed to a “Rule of 40” investment framework in 2026 with at least mid-teens gross profit growth and a mid-20% operating margin. We continue to own the stock due to Block’s long runway for growth, durable competitive advantages, and innovative product offering.”