Block share price rebounds 15% as analyst calls sell-off overblown

The Block share price has gone from villain to hero in the space of a day…

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A rockets heads into space, indicating a share price rising 'to the 'moon'

Image source: Getty Images

Key points

  • Block was one of the worst-performing ASX 200 shares yesterday
  • But the fintech company has turned the tables and is shooting almost 15% higher today
  • This as analysts at Wolfe Research have called the recent sell-off in Block shares "unwarranted".

It’s been a happy day and a relief-filled end of the trading week for ASX shares so far this Friday.

At the time of writing, the ASX 200 is up a healthy 1.77% at just over 7,060 points. But the Block Inc (ASX: SQ2) share price is shooting even higher.

Block shares are currently up a whopping 14.37% at $114.26 each after closing at just $99.90 yesterday. The shares went as high as $114.58 earlier in today’s session, which was a rise of close to 15%.

So what’s behind Block’s dramatic shift upwards today? Well, to place things in context, Block’s rise comes after the company was one of the worst-performing ASX shares on the share market yesterday.

While the ASX 200 ended up shedding 1.75% during Thursday’s trading, Block shares lost a whopping 17.6%. This came after Block’s US iteration fell by a similar amount on Wednesday night (our time) following some weakness across its sector. Last night saw Block’s US listing shoot 6.37% higher to US$75.76 a share.

So right off the bat, we can probably say that today’s moves are an elastic band-like bounceback from such a dramatic loss yesterday.

Block share price shoots the moon

But there’s another factor we can also consider. As reported by National Australia Bank Ltd (ASX: NAB)’s NABtrade, analysts at Wolfe Research have just come out and called the recent sell-off in Block shares “unwarranted”.

Wolfe Research says that the slide in the US-listed Block shares (which applies by extension to the ASX’s SQ2 shares) “can be attributed to bearish read-throughs from companies that reported earnings in the buy-now-pay-later (BNPL), lending and crypto spaces”.

Here’s some more of what Wolfe said:

We believe some have been interpreting the results/commentary from AI lending platform Upstart Holdings Inc as a negative for SQ given the perception that BNPL users are higher risk borrowers and the thought of not being able to sell loans to investors… Shares of some BNPL players and consumer lending firms came under pressure this week after UPST lowered its annual forecast…

In addition to the impact from UPST, Wolfe Research says investors may have been influenced by cryptocurrency exchange Coinbase Global Inc‘s forecast of a sequential drop in trading volumes in Q2…

As bitcoin accounts for about 24% of trading volume and 42% of assets on COIN’s platform, analysts believe SQ investors may have been reading through to potential further declines in SQ’s bitcoin revenue and gross profit… [Wolfe] believes pressure on share driven by these headlines are overblown and investors have the opportunity to be tactical around SQ.

So it’s possible that some investors agree. Whatever the true reason for Block’s eye-watering rises today, no doubt investors will be very pleased with what they see.

At the current Block share price, this ASX 200 share has a market capitalisation of US$43.98 billion.

Should you invest $1,000 in Block right now?

Before you consider Block, you'll want to hear this.

Motley Fool Investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Block wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.* And right now, Scott thinks there are 5 stocks that are better buys.

*Returns as of January 13th 2022

Motley Fool contributor Sebastian Bowen has positions in Bitcoin, Block, Inc., Coinbase Global, Inc., and National Australia Bank Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Bitcoin, Block, Inc., Coinbase Global, Inc., and Upstart Holdings, Inc. The Motley Fool Australia has positions in and has recommended Block, Inc. The Motley Fool Australia has recommended Upstart Holdings, Inc. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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