Why Block Stock Jumped Today

What happened

Fintech giant To block (SQ -1.01%) – the company formerly known as ‘Square’ – was trading up 2.5% as of 11:30 a.m. ET on Wednesday after growth investing enthusiast Cathie Wood revealed it had spent slightly less of $5 million on Tuesday to acquire just over 82,000 shares.

So what

At Cathie Wood’s ARK Innovation ETF (ARKK -0.38%) hasn’t been all that hot this year: it’s down 57% since the start of 2022. Still, many growth stock investors are still looking to Wood for clues about where the tech winds are blowing, and some imitate her transactions, which she publishes on Ark’s website with little delay.

Wood’s funds bought Block shares quite aggressively for most of May (nearly 355,000 shares acquired) – but then abruptly halted buying after the stock rose above $80 per share at the end of the day. end of the month. So, those following her probably noticed that Wood started buying Block again this week.

The block fell below $60 per share a week ago, but has since regained some ground. Presumably, these are the numbers Wood is focusing on – calculating that Block stock is a bargain at around $60 a share, and only starts to look expensive at around $80.

Now what

Of course, right now, Block stock is trading between those two numbers, and the question investors will be asking is: how far above $60 does Block stock stay? a good deal ? (And maybe: how close does it have to get to $80 before it’s time to sell?)

Individual investors must decide for themselves how to answer these questions – but for my part, I advise to err on the side of caution. Here’s why: Block isn’t profitable from a GAAP perspective, but with $965 million in free cash flow, the stock is trading for just over 37 times free cash flow. That sounds costly, given that most analysts polled by S&P Global Market Intelligence don’t see Block’s earnings growing even 15% a year over the next five years.

So even after the 75% decline in the stock price over the past 52 weeks, I’m having a hard time seeing the value of the stock in the bulk, whether it’s at $80 or even $60.

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