It hasn't been a great afternoon session for Block investors, who have watched their shares sink by -2.8% to a price of $49.8. Some of you might be wondering if it's time to buy the dip. If you are considering this, make sure to check the company's fundamentals first to determine if the shares are fairly valued at today's prices.
Block Has an Attractive P/B Ratio but a Worrisome P/E Ratio:
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 27.16 and an average price to book (P/B) ratio of 6.23. In contrast, Block has a trailing 12 month P/E ratio of -121.5 and a P/B ratio of 1.71.
When we divideBlock's P/E ratio by its expected five-year EPS growth rate, we obtain a PEG ratio of 0.59, which indicates that the market is undervaluing the company's projected growth (a PEG ratio of 1 indicates a fairly valued company). Your analysis of the stock shouldn't end here. Rather, a good PEG ratio should alert you that it may be worthwhile to take a closer look at the stock.
The Company Has a Positive Net Current Asset Value:
| 2018-02-27 | 2019-02-27 | 2020-02-26 | 2021-02-23 | 2022-02-24 | 2023-02-23 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $2,214 | $3,298 | $4,714 | $9,498 | $17,661 | $17,532 |
| Gross Margins | 38.0% | 40.0% | 40.0% | 28.0% | 25.0% | 34.0% |
| Operating Margins | 1% | 2% | 3% | 2% | 2% | 0% |
| Net Margins | -3.0% | -1.0% | 8.0% | 2.0% | 1.0% | -3.0% |
| Net Income (MM) | -$63 | -$38 | $375 | $213 | $166 | -$541 |
| Net Interest Expense (MM) | n/a | -$18 | -$22 | -$57 | -$33 | -$36 |
| Depreciation & Amort. (MM) | -$37 | -$61 | -$76 | -$84 | -$135 | -$341 |
| Earnings Per Share | -$0.17 | -$0.09 | $0.81 | $0.44 | $0.33 | -$1.08 |
| EPS Growth | n/a | 47.06% | 1000.0% | -45.68% | -25.0% | -427.27% |
| Diluted Shares (MM) | 379 | 406 | 466 | 482 | 504 | 502 |
| Free Cash Flow (MM) | $154 | $358 | $81 | $312 | $982 | $347 |
| Capital Expenditures (MM) | -$26 | -$63 | $247 | -$138 | -$134 | -$171 |
| Net Current Assets (MM) | $377 | -$49 | $384 | $574 | -$91 | $1,510 |
| Long Term Debt (MM) | $359 | $900 | $939 | $2,587 | $4,559 | $4,987 |
Block has slimmer gross margins than its peers, weak operating margins with a negative growth trend, and declining EPS growth. On the other hand, the company has healthy debt levels working in its favor. Furthermore, Block has weak revenue growth and a flat capital expenditure trend, irregular cash flows, and a decent current ratio.
