We recently published a list of 7 Most Undervalued Blockchain Stocks To Buy According To Analysts. In this article, we are going to take a look at where Block Inc. (NYSE:SQ) stands against the other most undervalued blockchain stocks to buy according to analysts.
Transforming Finance: The Impact of Blockchain Technology
The blockchain industry is witnessing significant trends that are shaping its future and expanding its use cases across various sectors. One of the most notable trends is the growth of Decentralized Finance (DeFi), which is transforming traditional financial systems by providing peer-to-peer financial services on public blockchains without intermediaries.
Established financial institutions are increasingly adopting blockchain technology to enhance transparency and efficiency. According to a report by The Business Research Company, the global market for blockchain in banking and financial services was valued at $4.61 billion in 2023. The market is expected to expand significantly at a compound annual growth rate (CAGR) of 40.4% during 2024-2028 to reach a value of $27.69 billion by the end of the forecast period.
According to the 2024 Geography of Cryptocurrency Report by Chainalysis, an American blockchain analysis firm, global crypto activity is on the rise. Between Q4 2023 and Q1 2024, the total value of global crypto activity increased significantly to surpass levels seen in 2021 during the crypto bull market.
In January 2024, the US Securities and Exchange Commission (SEC) approved the first spot Bitcoin exchange-traded funds (ETFs), marking a significant milestone for the cryptocurrency market. This approval led to a surge in Bitcoin activity across all regions, particularly in institutional-sized transfers and in regions with higher-income countries like North America and Western Europe. Meanwhile, stablecoin usage saw higher growth among retail and professional transfers, especially in lower-income areas such as Sub-Saharan Africa and Latin America. The Geography of Cryptocurrency Report also shows that DeFi services have seen substantial year-over-year growth, especially in areas like Sub-Saharan Africa, Latin America, and Eastern Europe.
Crypto investing is becoming more mainstream and institutionalized with Bitcoin ETFs. However, blockchain technology and tokenization also have the potential to disrupt the traditional ETF model. On September 28, CNBC reported that Janus Henderson, a leading global asset management group, has announced a partnership with Anemoy Limited and Centrifuge to launch the Anemoy Liquid Treasury Fund (LTF), a tokenized fund that provides investors direct access to short-term US Treasury bills. Nick Cherney, head of innovation at Janus Henderson, emphasized that this development represents an evolution in delivering investment services to clients more efficiently rather than a threat to the ETF industry.
This new fund will retain the typical features of an ETF while enabling trading on a blockchain platform. This offers investors benefits like 24/7 trading, instant settlement, and enhanced transparency regarding fund holdings, surpassing what traditional ETFs provide. Cherney stated that the firm aims to be at the forefront of this opportunity, which reflects a broader trend of integrating blockchain into financial services.
These trends highlight the growing interest in blockchain technology and its potential to reshape financial systems worldwide.
Methodology
To compile our list of the 7 most undervalued blockchain stocks to buy according to analysts, we reviewed our own rankings, sifted through ETFs, and consulted various online resources. From an initial pool of over 30 stocks involved in the blockchain space, we focused on those trading at under 23 times their forward earnings as of October 4. This helped us identify stocks that are cheaper than the S&P 500 Index, which has a forward P/E of 23.6 as of October 4 (as per WSJ).
We included only those stocks that are estimated to have positive earnings growth this year. From this list, we selected the stocks that analysts believe possess the greatest potential for growth. Finally, we ranked the 7 most undervalued blockchain stocks to buy according to analysts based on their average price target upside potential as of October 4, 2024.
Additionally, we mentioned the hedge fund sentiment surrounding each stock, which was taken from Insider Monkey’s database of 912 elite hedge funds as of Q2 of 2024.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
People using the Cash App paying for goods and services, highlighting the impact the of the company’s payment tools.
Block Inc. (NYSE:SQ)
Forward P/E: 14.41
Earnings Growth: 98.90%
Analysts’ Upside Potential: 34.29%
Number of Hedge Fund Holders: 59
Block Inc. (NYSE:SQ), formerly known as Square, is a global technology company with a focus on financial services and significant involvement in the cryptocurrency space. The company changed its name in 2021 to reflect its growing focus on crypto and blockchain technologies.
The company provides a range of products and services. Its flagship product, Square, helps businesses manage payments and operations through an integrated ecosystem of commerce solutions. Cash App allows users to send, spend, and invest money in stocks or Bitcoin. Block Inc. (NYSE:SQ) supports the blockchain industry through its subsidiary TBD, which focuses on creating an open platform for accessing Bitcoin and other blockchain technologies. Through Spiral, the company also builds free, open-source projects that advance the use of Bitcoin to enhance economic empowerment, further solidifying its commitment to the blockchain space.
The company’s business model caters to various customer needs, from small businesses to individual users, creating multiple revenue streams. On top of that, Block Inc. (NYSE:SQ) continues to explore new ways to innovate within the cryptocurrency space.
On July 10, Block Inc. announced a significant partnership with Core Scientific, one of the largest Bitcoin miners in North America, to supply advanced 3-nanometer (3nm) mining ASICs, which will enhance Bitcoin mining operations. The ASIC mining chip was built by the Proto team at Block. By integrating these new ASIC chips into Core Scientific’s infrastructure, the collaboration aims to decentralize Bitcoin mining and promote innovation within the sector, aligning with Block’s mission to democratize access to Bitcoin mining technology. The Proto team is developing a modular mining platform designed to improve efficiency, reliability, and sustainability in large-scale mining operations. Block Inc. (NYSE:SQ) could become a major player in the cryptocurrency mining sector.
In the second quarter of 2024, Block Inc. (NYSE:SQ) reported impressive financial results, with gross profit reaching $2.23 billion, a 20% increase year-over-year. Square generated $923 million in gross profit, up 15% year-over-year, while Cash App saw a more substantial increase of 23%, reaching $1.30 billion. This performance demonstrates the strength of Block’s diverse business model and its ability to adapt to market demands, particularly through Cash App, which has been a key driver of revenue.
The company’s profitability metrics also showed remarkable improvement in the second quarter. Operating income was reported at $307 million, with Adjusted Operating Income reaching $399 million. Notably, Adjusted EBITDA nearly doubled year-over-year to $759 million, reflecting a significant increase in efficiency and effective cost management. For the fiscal year ending in June, Block Inc. (NYSE:SQ) achieved an adjusted free cash flow of $1.43 billion, more than double that of the previous year, indicating strong cash generation capabilities.
Block Inc. (NYSE:SQ) is trading at only 14 times its forward earnings. Analysts are also bullish on SQ. The 12-month median price target set by analysts indicates a potential upside of 34.29% from current levels.
By the end of the second quarter of 2024, Block Inc. (NYSE:SQ) was held by 59 hedge funds. ARK Investment Management emerged as the largest shareholder, with a stake valued at $534.78 million. SQ ranks among the top 5 on our list of the most undervalued blockchain stocks to buy according to analysts.
Overall SQ ranks 5th on our list of most undervalued blockchain stocks to buy according to analysts. While we acknowledge the potential of SQ as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns, and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than SQ but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.