Jhe stock market has been hammered since the start of 2022, due to a series of macroeconomic and geopolitical headwinds. On June 15, the Federal Reserve raised its benchmark federal funds interest rate by 75 basis points – the biggest rate increase since 1994 – as it continues its bid to rein in inflation. To say the least, the market has not reacted positively to high inflation, rising interest rates, supply chain issues and other challenges related to the Russian invasion of Ukraine.
That said, many stocks are now falling due to negative market sentiment rather than fundamentals. As prudent, long-term investors, we can take advantage of correction by hoarding shares of high-quality companies as they trade at extremely low valuations. In fact, investors should buy stocks when they feel uncomfortable because it is from these purchases that we will often make our biggest gains.
On that note, here’s a fintech stock that’s down about 65% year-to-date, but could provide great returns for patient long-term investors.
Block is a fintech top dog
To block (NYSE:SQ)formerly Square, is a disruptor fintech company that continues to demonstrate its ability to innovate rapidly. The company started out as a provider of point-of-sale hardware and software to help small and medium-sized businesses manage credit and debit card payments, but has since evolved into a much more diverse business. Block also owns Cash App, a peer-to-peer mobile payment platform, and Afterpay, a buy-it-now and pay-later service similar to that offered by Affirm Assets.
In the first quarter, the company led by its founder Jack Dorsey generated revenue of $4 billion, down 21.7% from the prior year period, and adjusted profit of 0 $.18 per share. The sharp decline in total sales can be attributed to a 51% year-over-year decline in the company’s revenue. Bitcoin revenue, which it generates when people buy the cryptocurrency through the Cash App platform. Block essentially acts as an intermediary in these transactions – it buys Bitcoin from private brokers, takes a small share, and then resells it to Cash App users. It’s a very low-margin business and accounted for less than 5% of Block’s gross profit in the first quarter, so investors should pay more attention to its gross profit rather than total sales.
The fintech’s gross profit rose 33.8% to $1.3 billion in the first quarter, driven by strong performances from its Cash App and Square businesses, which increased gross profit 26.1% and 41 .2%, respectively. Despite Bitcoin’s sharp reduction in revenue, the company’s gross margin of 32.7% was well above the 19.1% it reached in the same quarter a year ago. Block’s multi-dimensional business model not only gives it plenty of room for growth, but it also adds a layer of security for investors. The company is focused on rapid growth, so it won’t surprise you with its short-term profitability metrics. But it could greatly reward long-term investors. And as a bonus, the stock is trading at less than twice the forwards, making it an optimal time to buy stocks.
Worth a look today
The disconnect between Block’s operating performance and its share price performance continues to widen – a clear buy signal for long-term investors. Given its business model, the company has the potential to capture market share in a wide range of industry segments. Block’s promising trading prospects, tied to its falling valuation, provide investors with a strong margin of safety at the moment. If you want to invest in the future of the financial services industry, this stock is worth adding to your portfolio today.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.