Should You Follow $25M in Insider Buying on This Cathie Wood Stock?

Once a world dominated paper trails and printed ledgers, the financial sector has transformed into a digital powerhouse, thanks to fintech. This industry merges finance with cutting-edge technology, transforming how we manage and move money. From artificial intelligence (AI)-powered banking to blockchain security, fintech is all about speed, convenience, and staying ahead of the game. 

One widely recognizable name in this niche is Block, Inc. (SQ), which is known for reshaping payments with innovative tools like Cash App. Block’s disruptive business model has earned it the No. 5 spot in Cathie Wood’s flagship ARK Innovation ETF (ARKK), at 5.16% of the fund’s weight, and it’s the No. 3 holding in the Ark Fintech Innovation ETF (ARKF), at 6.34%.

Block company insider Roelof Botha made a splash last month, buying $25 million worth of SQ shares in a single transaction. Insider buys like this signal confidence in Block’s future, and the stock is up more than 11% since the Aug. 6 transaction. 

Analysts are also upbeat on this fintech stock, which has recently earned a consensus “Strong Buy” rating from Wall Street. So, should investors follow insiders into SQ stock? Let’s take a closer look.

About Block Stock

Oakland-based Block, Inc. (SQ), with a market cap of $39.5 billion, is a fintech powerhouse transforming financial services. Founded in 2009 as a mobile payments platform, Block has grown into a multifaceted company, spearheading innovation with Cash App and Square.

Cash App goes beyond simple transfers, offering banking, investing, and Bitcoin (BTCUSD) trading. Square provides essential e-commerce and payment tools for businesses to thrive. Block also owns TIDAL, a music streaming service, and Spiral, a Bitcoin-focused initiative, while its TBD platform empowers developers to create decentralized finance applications.

Shares of Block have climbed 10.2% over the past 52 weeks, and the stock is down 17.2% YTD. SQ has pulled back 24.5% from its 52-week high of $87.52, set back in March. As noted, though, the stock has been moving higher since Botha’s insider buy about a month ago.

From a valuation standpoint, SQ stock currently trades at 1.87 times sales – lower than its industry rivals, and much cheaper than its own five-year average of 5.07x. Plus, at 18.13 times forward adjusted earnings, Block is a reasonably priced growth stock. 

Block Reports Mixed Q2 Earnings

The company reported its fiscal Q2 earnings results on Aug. 1, which surpassed Wall Street’s bottom-line forecasts. Block’s revenue rose 11% year over year to $6.16 billion, but narrowly missed expectations. Adjusted net income skyrocketed by 132.5%, reaching $0.93 per share. 

Block’s gross profit rose 20% to $2.23 billion, a key metric for analysts tracking its core transactional businesses. The company also achieved an 18% adjusted operating margin thanks to strong growth and disciplined expense management, representing meaningful margin expansion.

Cash App continued to shine, with revenue up 12% and gross profit surging 23%. The app’s inflows jumped 15% to $71 billion, while inflows per active user hit $1,243, climbing 10% and holding steady quarter over quarter, even with the added bump from Q1 tax refunds. Revenue and gross profit of Block’s other flagship segment, Square, climbed 9% and 15%, respectively.

Block’s balance sheet is rock-solid, boasting $9.5 billion in cash and a healthy $1.43 billion in free cash flow. With long-term debt at $5.1 billion, the company’s financial strength positions it well to capitalize on future growth initiatives.

In 2024, Block’s management is expecting gross profit growth of 18% annually to at least $8.89 billion. The momentum is driven by Cash App, with robust growth anticipated as it builds on cost improvements and ramps up marketing. Square is also expected to deliver solid profit growth, with management focusing on cross-selling and new product launches.

Plus, with stronger margins and free cash flow, Block’s management is ramping up shareholder returns, completing a $1 billion buyback and announcing a fresh $3 billion share repurchase program.

Analysts tracking Block predict its fiscal 2024 revenue to grow by 12.9% annually to around $24.75 billion. EPS is projected to rise by 975% to $1.72 this year and surge by another 57.6% to $2.71 in fiscal 2025.

Sequoia’s Bold Bet on Block

On Aug. 6, Roelof Botha, a big name in venture capital and a partner at Sequoia Capital, made a bold move by scooping up 434,405 shares of Block at an average price of $57.55. This signals strong confidence in Block’s future amid a rapidly shifting fintech landscape. 

Botha, a former CFO at PayPal (PYPL), currently sits on the board at Block. While his name appears on the Form 4 disclosure, the purchases were made in his capacity as a partner for Sequoia; both transactions were flagged as indirectly owned via the SC US/E Expansion Fund I Management, L.P., a venture capital fund managed by his firm. 

The only other insider buy of this magnitude on the record for SQ was also made by Botha, in November 2023, when he scooped up $27.5 million worth of shares at an average price of $50.89. SQ is up about 26% since then.

What Do Analysts Expect for Block Stock?

Overall, Block stock is a “Strong Buy” on Wall Street – an improvement from the “Moderate Buy” consensus of a couple of months ago. 

Out of the 37 analysts covering SQ, 27 have a “Strong Buy” recommendation, two say it’s a “Moderate Buy,” six rate it a “Hold,” one recommends a “Moderate Sell,” and one says it’s a “Strong Sell.”

The analysts’ average price target of $85.97 implies a potential upside of about 34.2% from SQ’s current price levels. Its Street-high estimate of $100 suggests the stock could rally by as much as 56% in the next 12 months.

On the date of publication, Sristi Suman Jayaswal did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.