Block shares fell by -2.0% during the day's morning session, and are now trading at a price of $60.64. Is it time to buy the dip? To better answer that question, it's essential to check if the market is valuing the company's shares fairly.
Block, Inc., together with its subsidiaries, creates tools that enables sellers to accept card payments and provides reporting and analytics, and next-day settlement. The company belongs to the Technology sector, which has an average price to earnings (P/E) ratio of 26.5 and an average price to book (P/B) ratio of 5.57. In contrast, Block has a trailing 12 month P/E ratio of -363.1 and a P/B ratio of 2.2.
One of the main reasons not to blindly invest in a company with a low P/E or P/B ratio is that it might have low growth expectations. Low growth correlates with low stock performance, so it's useful to factor growth into the valuation process. One of the easiest ways to do this is to divide the company's P/E ratio by its expected growth rate, which results in the price to earnings growth, or PEG ratio.
Block's PEG ratio is 3.82, which shows that the stock is overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued. So investors should not rely on its attractive P/B ratio alone in making a investment decision.
