Why Block Stock Could Be a Smart Buy Ahead of November 7

With Block (NYSE: SQ) set to release its third-quarter earnings report on November 7 (for the period ending September 30), anticipation is building among investors.

Despite strong and profitable growth over the past year, the fintech leader’s stock has dipped 5% in 2024, potentially frustrating some shareholders. This earnings release offers Block the opportunity to demonstrate its ongoing operational and financial momentum to the market.

Here’s why Block could be a valuable addition to your portfolio:

A Fintech Leader Driving Profitable Growth

Block stands out as a pioneering force in the fintech space, pushing forward the digitization of global commerce and banking. The company’s Square and Cash App ecosystems have substantial room to grow, targeting a $205 billion addressable market. Segments like mobile payments, digital banking, buy-now-pay-later (BNPL) commerce, and peer-to-peer transfers are all still in the early stages of what’s expected to be a sustained growth trend.

Q3 Earnings Preview: What to Expect from Block

For the third quarter, Block has forecast a 17% year-over-year increase in gross profit and expects $695 million in adjusted EBITDA, representing a 46% jump from the same period last year.

While these numbers are positive, they also reflect a slight deceleration compared to the stronger growth rates seen in the first half of the year, which may explain some recent stock weakness. Meeting or exceeding these Q3 targets could help reinforce confidence in Block’s financial strategy.

One of the most significant developments for Block this year has been its shift toward steady profitability. Cost control and financial efficiencies are paying off, with further gains expected as the company continues to scale.

Long-Term Growth Potential on a Multiproduct Platform

In its Square division, Block is experiencing a multiyear transformation as sellers adopt more products, contributing to a growing stream of recurring revenue.

Cash App’s 57 million active users are becoming more engaged by using services such as the Cash App card, direct deposits, and loan products. The Afterpay BNPL solution has also been a driver of growth, with 24 million active users. Additionally, Block’s exposure to the crypto market adds another layer of potential, particularly with Bitcoin prices near record highs. Investors will be looking for evidence that Block can monetize these opportunities even further.

A key metric to watch this quarter is the adjusted operating margin, expected at 14%. Although lower than last quarter’s 18%, it represents a significant improvement from 5% in Q3 of 2023 and reflects a balance between ongoing technology investments and marketing needs.

The bigger picture shows Block progressing well toward its goal of achieving the “Rule of 40” by 2026—a benchmark used to assess the sustainability of software company profits. For Q3, the combined gross profit growth and adjusted operating margin are expected to reach 31%, with full-year projections at 35%, indicating Block is on track to meet or even surpass the 40% target sooner than expected.

If Block’s management team expresses optimism during this quarter’s earnings call, it could provide the catalyst for a stock rally. Currently, Block is trading at an EV-to-forward-EBITDA multiple of just 14, which looks compelling given its ongoing earnings improvements and favorable outlook.

Decision Time: Bullish on Block

I believe Block stock deserves a “buy” rating. The core business is well-positioned for continued growth, making Block an appealing option for long-term investors. Although earnings can be unpredictable and may sometimes reset expectations, Block remains a strong choice for a diversified portfolio with a forward-looking investment strategy.