Digital payments, financial services, and Bitcoin (CCC:BTC-USD) company Block Inc (NYSE:SQ) has started off 2022 the way it spent the final three months of 2021: watching its shares slump. After closing at an all-time high in August, SQ stock continued the volatility that has become one of its defining characteristics.
A pullback that began in earnest last October has had SQ in free fall. At this point, shares are worth less than half what they were in October, and they’re way off last August’s peak.
Is this extended slump an opportunity to snap up SQ stock on the cheap? They haven’t been priced this low since 2020. And now the company has CEO Jack Dorsey focusing on its business full-time instead of splitting his time with another company. While that combination could be tempting, if I were you, I’d hold off on making any rash decisions for now.
A Lot Has Changed About the Block Story
The last time I wrote about Block, it was still Square. This was in early June 2021, and a lot more than the company’s name has changed since then.
At that time, SQ stock was trading at over $211. I had concerns about volatility, particularly the big movements in share price that were specifically tied to its embrace of Bitcoin. However, there was the summer concert and festival season to look forward to.
That’s a time when smaller vendors make full use of their Square readers. That would be a welcome return to normalcy for the company after the previous winter, which saw Christmas arts and crafts shows shut down because of Covid-19.
Overall, the stock rated a “B” in Portfolio Grader. At that time, investment analysts polled by the Wall Street Journal rated SQ stock as “overweight.” They also had an average $280.41 price target, which represented over 30% upside.
Given the factors in play, last June I felt that SQ offered a reasonably secure long-term growth opportunity, with the warning that the company’s Bitcoin association would mean volatility would continue.
For a time, it looked like a good call. The price of SQ stock did indeed exhibit frequent fluctuations. However, by August 6 it had closed at $281.81, a new all-time high. Then the wheels fell off the bus.
What’s Happened to Torpedo SQ Stock?
There have been two primary issues that have combined to hit the price of SQ stock since last October.
The first is the value of Bitcoin. Block has become so associated with Bitcoin that the market has been closely correlating SQ with the movement of Bitcoin value. That August record high close for SQ stock was no coincidence.
It happened as Bitcoin spiked in value, shooting up 43% in three weeks. Although it had a brief rally early in November, the value of Bitcoin has been in decline since October. It’s not a coincidence that with the value of Bitcoin down 36% since mid-October, SQ stock is down 52%.
Square has fared even worse than Bitcoin thanks to the company’s 2021 third-quarter, which was a miss in terms of both earnings and revenue.
The SQ stock of today is most definitely not the SQ stock of last June. The company’s name has changed and its CEO Jack Dorsey is now in the role full-time. The price of Bitcoin continues in an extended slump that started nearly three months ago. With the price of Bitcoin depressed and omicron once again playing spoiler for many holiday arts and crafts shows, Q4 results are unlikely to stop the SQ stock slide.
In addition, as InvestorPlace contributor Mark R. Hake recently pointed out, analysts are concerned about Block’s rapidly slowing revenue growth. That’s led to price targets that offer little in the way of upside through 2022.
At this time, SQ stock has fallen to an “F” rating in Portfolio Grader. I’m not saying the company is done, but it has work to do. Investors are also going to need to deal with the volatility inherent in Block’s embrace of Bitcoin — plus the NFT mania in music streaming service Tidal, which Block acquired a majority stake in last year.
It’s all too much for most investors. Block may yet figure this out, disassociate itself from the volatility of crypto, and bring life back to its revenue growth. But I wouldn’t want my money riding on the company in the meantime.
On the date of publication, neither Louis Navellier nor the InvestorPlace Research Staff member primarily responsible for this article held (either directly or indirectly) any positions in the securities mentioned in this article.
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