Sticking with Block (Formerly Known as Square)
$Block(SQ.US$ I've bought Block (NYSE: SQ) about six months ago, and it is a lesson in diversification. Fortunately, I have other holdings that have performed well during 2021. As I go into 2022, I am now faced with deciding whether to hang onto my holdings.
Here is my thesis:
First, and most importantly, Block is financially sound with an Altman-Z score of 6.01. It also has positive free cash flow.
It's revenue growth has not disappointed for 2021, and my projections, even with using a supernormal growth adjustment, has it growing 30% per annum over the next five years. Even with the most bearish case, it has a present value of $450 and a five-year future value of $900.
The downturn in earnings for 2021 is disappointing for sure, but still remains positive, which is a requirement for inclusion in the S&P 500 index. When that happens, most large-cap mutual funds will be turned into buyers of this stock. I had to make some assumptions finding fair and future values for this one. First, I am assuming that its SG&A margin will remain stable at 19%. I am also assuming a low end P/E of 23. With that, I have it pegged with a fair value of $176, and an average future value of $327 .
As I see it, at worst this company is worth $198 right now, and should be worth $490 in five years. Time will tell.
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