There were a lot of interesting insider buys last week. However, despite a deep field of many to choose from, there was only one choice for this week’s insider buy with purpose article, Block, Inc. (SQ).
Block is Square, Cash App, Spiral, TIDAL, and TBD.
- Square helps sellers more easily run and grow their businesses with its integrated ecosystem of commerce solutions, business software, and banking services.
- Cash App is focused on redefining the world’s relationship with money by making it more relatable, instantly available, and universally accessible.
- Spiral builds and funds free, open-source projects that advance the use of Bitcoin as a tool for economic empowerment.
- TIDAL is a global platform for musicians and their fans that uses unique content, experiences, and services to bring fans closer to the artists they love and give artists the tools to succeed as entrepreneurs.
- TBD is building an open developer platform to make it easier to access Bitcoin and other blockchain technologies without having to go through an institution.
You might be familiar with Block’s Chief Executive Officer (CEO) and co-Founder, Jack Dorsey, who also founded and acted as CEO at X, formerly known as Twitter.
Two things elevated SQ’s insider buy above all others.
Since going public on November 19, 2015, there have only been two buys. The initial insider transaction, a purchase of 750,000 shares at the IPO price in November 2015 for $6.75 million, and director Roelof Botha’s buy on 540,646 shares last week at $50.89 per share for a whopping $27.5 million. Insiders did nothing but sell between the barbell buy, unloading an eye-popping $2.38 billion is stock. (1)
We cannot recall anything similar in our years of monitoring and writing about insider buys.
Block’s stock price is well off its all-time high of $289.23 achieved on August 5, 2021. As we type, SQ last traded at $58.19 with a 52-week range of $38.85 to $89.97. Wall Street sees the stock trading higher, to $71.71 as the one-year price target. (2)
According to Baron FinTech Fund portfolio manager Josh Saltman, Block “Shares fell due to a confluence of factors, including slowing growth, a brief system outage, and the departure of a key executive who ran the Square business segment. Ongoing investor concerns over consumer spending and a recession did not help sentiment. Nevertheless, Block reported strong quarterly results with 27% gross profit growth and adjusted EBITDA more than doubling. We believe Block’s businesses are resilient, and greater management focus on cost discipline should drive further margin expansion. We continue to own the stock due to Block’s long runway for growth, durable competitive advantages, and track record of innovation.” (3)
In the most recent shareholder letter for third quarter results, CEO Dorsey wrote, “we expect our margin profile and free cash flow generation to improve as well, which means we can return more to our shareholders over time. Today, we’re instituting an initial authorization to repurchase $1 billion in shares, which will offset a portion of dilution from share-based compensation. This also allows us to act opportunistically when we believe our company is undervalued.” (4)
Analysts expect Block to earn $3.08 per share (EPS) in 2024 with sales of $24.52 billion. Both the bottom and top lines are forecasted to increase from EPS of $1.94 and revenue of $21.79 billion this year. (5) Buying back a billion dollars in stock could inch SQ’s earnings beyond consensus expectations with less shares outstanding.
Overall: To hit $71.71, Block, Inc. (SQ) would need to trade at 23.28 times 2024 projected earnings (P/E) of $3.08, which is reasonable in our view considering profit is forecasted to increase 58.76 percent. Many believe that a P/E ratio equal to earnings growth is reasonable. To hit Wall Street’s one-year price target would require a P/E ratio that’s less than half projected earnings growth.
SQ could be appropriate for aggressive investors with above-average risk tolerance and a time horizon of at least one year.
1 – https://www.secform4.com/insider-trading/1512673.htm
2 – https://finance.yahoo.com/quote/SQ?p=SQ
3 – https://d2gr5kl7dt2z3t.cloudfront.net/blog/wp-content/uploads/2023/11/15055725/Baron-FinTech-Fund.pdf
4 – https://s29.q4cdn.com/628966176/files/doc_financials/2023/q3/Block_3Q23_Shareholder-Letter.pdf
5 – https://finance.yahoo.com/quote/SQ/analysis?p=SQ