Block, Formerly Square, May Have Further To Fall

Seeking Alpha2021-12-24

Summary Block faces both macro and comparable headwinds in 2022 as peers look more attractive. The technical chart shows that a short-term rebound attempt has failed to materialize. Options traders ...

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精彩评论

US_watchlist
2021-12-24
US_watchlist
Please like and comment on. Thanks
- 26629536:
  [Cool]
Davidbay
2021-12-24
Davidbay
Square
- US_watchlist:
  yah
ivy888
2021-12-24
ivy888
Like
- BerryNat:
  Ok
nAonkA
2021-12-24
nAonkA
Ok
- ivy888:
  ok

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The stock has suffered since peaking in early August, dropping by nearly 45%. The odds are climbing that the performance doesn't get any better either, as the Fed turns its attention to inflation in 2022 and more hawkish monetary policy. That will likely lead to many of these high flyers struggling next year as multiple compression and valuations drop. Options traders are betting the stock doesn't rebound anytime soon.\nValuations Matter\nBlock is not cheap by any stretch of the imagination. Trading at 43.2 times 2023 EV/EBITDA and 57.5 times 2023 earnings estimates. The only reason the stock looks reasonably valued on a price-to-sales metric of 3.2 times 2023 forecast has to do with how it books its bitcoin revenue.\nGrowth in earnings and EBITDA is forecast to take a significant hit next year, with EBITDA rising by 10.8% to $1.08 billion and earnings climbing by 7.5% to $1.84. If everything goes right, analysts then see earnings climbing by 49.5% in 2023 to $2.76 per share, and EBITDA rising by 56.9% in 2023 to $1.69 billion.\nIt will have to go right for Block because the growth forecast in 2022 comes nowhere close to what is needed to sustain the multiples on Block currently. In an environment where multiples are likely to compress, 2022 will need to be a year that provides plenty of upside reports and guidance. Especially when peer PayPal(NASDAQ:PYPL)trades with an EV/EBITDA multiple of 19.9 times 2023 estimates and 27.3 times 2023 earnings. Not only that but PayPal is expected to grow its EBITDA in 2022 by 15.5% and earnings by 14.4% in 2022. So the comparables favor PayPal over Block both in growth and valuations.\nBetting Shares Fall Further\nOn Dec. 21, the open interest for the March 18 $170 calls increased by roughly 4700 contracts, while the $170 puts jumped by around 4,300 contracts. The data shows that 5,000 contracts call contracts were sold on the BID for $13.15, while 5,000 of the puts contracts were bought on the ASK for $22.35. In total, the trader paid around $8.20 per contract to bet that Block will be trading below $170 by the middle of March. The trader would need Blocks stock to be below $161.80 by the expiration to earn a profit.\nShort-Term Rally\nThe technical chart shows that Block tried to break out of a falling wedge pattern. To this point, it has been unable to mount a meaningful rebound. If the stock should fall below support at $154 it is likely to lead to a bigger drop, potentially back to $133, a price the stock has seen since September 2020.\nThe relative strength index is attempting to flash a bullish divergence with the stock making a lower low and the RSI making a higher low. If the stock is able to advance beyond $175 it is likely to move all the way back to $199.\nHowever, given the shifting macro backdrop and the lack of the stocks ability to participate in this week's rally doesn't support the idea of the stock rising anytime soon.\n\nBlock will have a much more challenging year, both from comparable earnings and valuation standpoint. On top of that market, the dynamics are changing. Which likely means the stocks that have been favored over the past 18 months may now be turning out of favor as valuations begin to matter. 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