Block (SQ) is back in focus after two restaurant and retail clients, Honolulu Cookie Company and Dimassi’s Mediterranean Buffet, expanded their use of Square’s software, hardware, and marketing tools across growing store networks.

Despite recent client wins, Block’s share price has moved in fits and starts, with a 90 day share price return of 7.71% and an 18.42% year to date share price return. The 5 year total shareholder return has declined 68.80%, suggesting long term holders are still under pressure even as sentiment improves in the near term.

If Block’s recent momentum has you thinking about other payment and software driven opportunities, this is a good time to scan for 18 top founder-led companies

Block appears to be gaining real traction with a growing base of merchants, yet the stock is still recovering from a steep five-year decline. After the latest rebound, is this a quality ecosystem at a fair price or an expensive turnaround?

Most Popular Narrative: 14.8% Undervalued

Based on the most followed narrative, Block’s fair value of $90.52 sits above the last close at $77.15, which places greater emphasis on the company’s future earnings power rather than its recent share price performance.

The scaling and innovation within Square for Businesses, highlighted by the launch of new hardware like Square Handheld, adoption of omnichannel commerce tools, and growing field/telesales teams, positions Block to further capture share from the global trend toward digitalization and consolidation of small business commerce, supporting topline growth and eventual margin expansion as the business scales internationally.

Curious how this story justifies that higher fair value for Block? The narrative focuses on expectations for future revenue expansion, rising margins, and a richer earnings profile that all factor into that $90.52 figure.

Result: Fair Value of $90.52 (UNDERVALUED)

However, the Block narrative also depends on crypto related revenue and growing BNPL and lending exposure, where regulatory changes or higher loss rates could quickly challenge those fair value assumptions.

Another View: Block Looks Expensive On Earnings

While the narrative and fair value estimates lean supportive, the earnings multiple tells a tougher story. Block trades on a P/E of 57.4x versus 15.2x for the US Diversified Financial industry, 11.7x for peers, and a fair ratio of 28.5x. This points to meaningful valuation risk if sentiment cools.

For a closer look at how this compares with fundamentals over time, check out the valuation breakdown in the See what the numbers say about this price — find out in our valuation breakdown.

Next Steps

Mixed messages on Block can be confusing, so consider both the concerns and the bright spots for yourself and move quickly to shape your own view with 3 key rewards and 2 important warning signs

Looking for more investment ideas beyond Block?

If Block has sharpened your thinking, do not stop there. Use targeted stock lists to quickly surface other opportunities that fit your risk and return preferences.

• Target potential mispricings by reviewing companies flagged as 49 high quality undervalued stocks that combine solid fundamentals with attractive price tags.
• Strengthen your income stream by scanning 9 dividend fortresses that focus on higher yields with an emphasis on staying power.
• Keep risk in check by screening 81 resilient stocks with low risk scores that prioritize resilient balance sheets and steadier return profiles.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.