ASX 200 BNPL stock Block Inc CDI (ASX: SQ2) has tumbled by more than 40% since early August.
The Block share price is currently $71.36, up 3.68% in late afternoon trading on Wednesday.
Block is also listed on the New York Stock Exchange. In overnight trading, Block Inc (NYSE: SQ) shares closed at US$46 per share, up 5.24%.
In a note to investors, Bank of America (BofA) says the sell-off is "largely unjustified".
Let's take a look at why.
ASX 200 stock now 'undervalued' following sell-off
Firstly, a visual representation of what's happened to this ASX 200 stock since early August.
Following the sell-off, BofA analysts reckon Block shares are now undervalued.
They have a buy recommendation on the US stock with a 12-month share price target of US$71.
The analysts said (courtesy Australian Financial Review (AFR)):
We believe Block is undervalued, business model quality is high, and sentiment is too negative.
We believe the massive pullback in SQ has been largely unjustified.
5 reasons why the sell-off makes no sense: BofA
To assist ASX 200 stock investors in understanding why the price fall has occurred, here are five points from BofA explaining why the sell-off in Block shares is unjustified.
1 — The rotation out of growth stocks amid higher interest rates
2 — Investor positioning (was crowded hedge fund long mid-summer, and since then sentiment has followed the stock chart, while long-onlys have largely remained on the sidelines)
3 — Questions surrounding Square (i.e., execution on new verticalised sales structure following leadership change, as well as macro)
4 — Cash App GP deceleration in 3Q, along with soft intra-quarter high-frequency data points
5 — A recent platform outage (likely a one-off).
The BofA analysts say they are "bullish on Block's full-fledge dual-sided ecosystem (Square and Cash App)".
They explained that Block shares underperformed in 2022 due to macro concerns, however:
… we believe the stock is not being given enough credit for the general resilience the business has shown to date as well as its opex discipline.
Block also doesn't have the 'legacy tech' overhang of some other payment companies, which should make it easier to own. We believe that fundamentals and valuation … suggest upside potential.
Should you buy Block shares?
Well, Bank of America thinks so, judging by its buy recommendation and share price target.
The share price target represents a potential upside of 54% over the next 12 months.
