An Affordable Growth Stock
Monthly Deep-Dive: Block Inc. $SQ
Investors,
Innovation has pushed human civilization forward, making us more productive, efficient, and able to enjoy the fruits of our labor. Whether we’re talking about the ability to harness fire, the invention of the wheel, aqueducts, the printing press, the internal combustion engine, ball bearings, radio, the internet, or smartphones, it’s clear that technology is a driver of change.
At its core, “technology” describes a medium with which humans interact with things. In economic terms, one of my professors in college explained technology as “the relationship between capital and labor”, recognizing that capital and labor are both substitutes and compliments to one another.
Capital/machinery can replace individual workers
Capital/machinery can be used by individual workers to boost their productivity
Today, we tend to focus on technology that is on the edge of innovation, leading to a sense of excitement around companies and assets that operate within these pockets of innovation. We take old innovations for granted, prioritizing the unknowns and potential growth of new technologies that have the opportunity to reshape our world.
I immediately think of the following innovations that have well-deserved hype:
Renewable energy, artificial intelligence & machine-learning, augmented/virtual reality, robotics, gene editing, Bitcoin, and digital payments.
We live in a digital world, which is only going to become more entrenched in the years and decades to come. Logically, investors want to benefit from these trends and are therefore trying to find the “next big thing” and the company who will deliver it.
Amidst this search, many investors have been enticed by Block Inc. (formerly Square). The fintech company is responsible for small business point-of-sale (POS) systems and software, also offering digital payment & financing solutions to their customers/users. The stock was a massive beneficiary of the 2020 boom for growth stocks, benefitting from the digital payment narrative during COVID and a track record of delivering strong growth. However, like all growth stocks, Block/Square stagnated in 2021 and got hammered during the 4th quarter. If the stock got “hammered” in Q4’21, it got nuked in 2022. From the peak in 2021 to the lows in 2022, the stock fell a total of -82%. Yes, 82%!
Fundamentals and operating results have certainly normalized after amazing growth in 2020 & 2021, but the massive decline in the stock price has investors wondering “is now the time to be buying the stock, or is it simply another soon-to-be-forgotten growth story?”
Premium members have asked me to conduct a thorough review of Block SQ 0.00%↑ in this edition of the monthly deep-dive series, where I share exclusive analysis on any stock that subscribers vote for. The company is certainly exciting and innovative, but do they deserve a place in our portfolio, particularly in a world of 5% interest rates?
That’s what I’m going to find out below.
So far in 2023, I’ve shared deep-dive analysis on Chevron, Meta, AMD, and Costco, all of which were chosen by subscribers. This monthly series has become a massive value-add for premium members and I’m super excited to share this new analysis on Block!