Block Inc: Battered Fintech Stock Could Recover by 84%

Growth of Fintech Sector Supports Bullish Story for SQ Stock

The COVID-19 pandemic drove up the market interest in electronic payment stocks as physical stores were shuttered and shopping moved online. But even as the economy reopens worldwide, the demand for electronic payment solutions will likely continue to accelerate. The shift will be driven by faster Internet connections and the increasing demand for e-commerce.

While the electronic payment market is crowded and dominated by the major credit card companies, there are also several smaller players with compelling technologies. That’s the situation with Block Inc (NYSE:SQ), previously known as Square Inc, an early adopter of portable electronic payment devices.

The company has expanded into numerous growth segments and is no longer a one-trick pony in the electronic payment industry.

Block Inc has become a more broad-based financial technology (fintech) company. Its core business remains electronic payments, but the company also offers products and services such as its “Cash App,” which enables users to move money around, including investing in stocks or Bitcoin. (Source: “Overview,” Block Inc, last accessed March 1, 2022.)

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Strong Upside for Block Stock After 62% Drop

SQ stock was flying high at $289.23 in August 2021 prior to tanking to $82.72 on February 24, 2022.

But on February 25, the day after Block Inc reported excellent fourth-quarter financial results and a bullish outlook, Block stock surged to $119.22. That was a 25% increase from the previous trading session.

The bounce was impressive, but, as of this writing, SQ stock remains 62% below its exceptional August 2021 high.

Now, as technology stocks have been repriced—with some of the biggest technology stocks down by well over 50% from their euphoric highs and the Nasdaq swinging back and forth from bear market territory—there are better entry points.

Of course, traders of technology stocks still need to be careful, given the higher yields and their impact on valuations.

In the case of Block Inc, I view its share-price weakness as an opportunity for investors to take a new position or add to an existing position.

Block Inc’s Risk/Reward Trade-Off Looks Compelling

The below chart shows SQ stock in a death cross, a bearish technical crossover pattern in which the 50-day moving average breaks below the 200-day moving average.

In the case of Block Inc, its current share price (even after the price surge) remains well below its 50-day moving average of $132.17 and 200-day moving average of $212.52. Moves to these levels translate to potential gains from Block stock of 15% to 84%, respectively.

Drawing the Fibonacci retracement levels, if SQ stock rallies, I see targets of $162.95, $187.85, $212.75, and its high of $289.00.

Chart courtesy of StockCharts.com 

Analyst Take

Longer-term investors might want to consider Block stock due to its current price deterioration, especially if the stock dips below $100.00.

The fintech solution market will only expand, and I like the direction that Block Inc has been taking, which means SQ stock could climb in value.