Block, Inc. (SQ) and its subsidiaries create tools that enable sellers to accept card payments and provide reporting, analytics, and next-day settlement. It serves the United States, Canada, Japan, Australia, Ireland, France, Spain, and the United Kingdom.

The company’s recent earnings report caused some controversy about whether the company beat or missed expectations on several key metrics.

On the other hand, last month, Bragar Eagel & Squire, P.C., a nationally recognized stockholder rights law firm, declared that it is investigating potential claims against SQ on behalf of its stockholders.

Moreover, on August 11, 2022, DA Davidson researchers slashed their 2022 EPS estimates for SQ. Cowen and Oppenheimer also downgraded the stock.

Over the past month, SQ has lost marginally to close the last trading session at $70.94. Moreover, it has lost 73.8% over the past year and 56.1% year-to-date.

Here is what could shape SQ’s performance in the near term:

Poor Financials

For the second quarter ended June 30, 2022, SQ’s total net revenue came in at $4.40 billion, down 5.9% year-over-year. FactSet analysts expected its revenues to come in at $4.33 billion. Its bitcoin revenue came in at $1.79 billion, down 34.4% year-over-year. Moreover, its operating loss came in at $213.77 million, compared to an income of $124.99 million in the year-ago period.

Furthermore, its net loss came in at $208.01 million, compared to its net income of $204.02 million in the prior-year period. Its adjusted EPS came in at $0.18, down 63.3% year-over-year. Analysts expected its EPS to come in at $0.16.

Bleak Profit Margins

SQ’s trailing-12-months gross profit margin of 31.33% is 37.6% lower than the industry average of 50.17%. Its trailing-12-month negative EBIT, EBITDA, and net income margin of 2.23%, 0.98%, and 3.00%, are lower than the industry averages of 7.42%, 13.05%, and 4.25%, respectively.

In addition, SQ’s trailing-12-month ROCE, ROTC, and ROTA of negative 5.00%, 1.47%, and 1.69%, compare with the industry averages of 7.28%, 3.98%, and 2.74%, respectively.

Weak Momentum

SQ is currently trading below its 200-day moving average of $117.99 and its 50-day moving average of $71.90. Also, it has lost 74.3% since hitting its 52-week high of $276.14 on August 31, 2021.

POWR Ratings Reflect Arid Prospects

SQ has an overall rating of D, equating to Sell in our proprietary POWR Ratings system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

SQ has a D grade for Quality, consistent with its lower-than-industry profit margins.

In addition, it has a D grade for Stability, in sync with its beta of 2.45.

In the 107-stock Financial Services (Enterprise) industry, SQ is ranked #91. The industry is rated F.

Click here for the additional POWR Ratings for SQ (Growth, Value, Momentum, and Sentiment).

View all the top stocks in the Financial Services (Enterprise) industry here.

Bottom Line

SQ currently demonstrates below-par profitability with dreary fundamentals. Moreover, Street expects its revenue to decline in 2022. Given its incapacitated growth prospects, I think SQ might be best avoided now.

How Does Block, Inc. (SQ) Stack Up Against its Peers?

While SQ has an overall POWR Rating of D, one might consider looking at its industry peers, Forrester Research, Inc. (FORR), which has an overall A (Strong Buy) rating, and WNS (Holdings) Limited (WNS), Federal Agricultural Mortgage Corporation (AGM), and Medallion Financial Corp. (MFIN), which have an overall B (Buy) rating.

SQ shares rose $0.12 (+0.17%) in after-hours trading Wednesday. Year-to-date, SQ has declined -55.04%, versus a -12.26% rise in the benchmark S&P 500 index during the same period.

Riddhima is a financial journalist with a passion for analyzing financial instruments. With a master's degree in economics, she helps investors make informed investment decisions through her insightful commentaries.

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