Investors in ASX tech share Block Inc (ASX: SQ2) have had a remarkable few months.
Block shares may be down a hefty 2% today to $128.99 at the time of writing, but this fintech company remains up a huge 20.3% over just the past month alone and close to 50% over the past three months.
Investors have also enjoyed a tamer 13.4% gain in 2024 to date, which has exploded to more than 50% over the past 12 months. Check it out for yourself below:
However, as welcome as these gains have no doubt been for ASX tech investors, they do arguably leave Block shares looking fairly expensive right now, at least according to some traditional metrics.
At the current Block share price, this ASX tech stock has a price-to-earnings (P/E) ratio of around 47. Now, having an earnings multiple of nearly 50 on any ASX share should be enough for many investors to at least take a second look. It might even immediately put off value investors.
But one ASX expert reckons Block shares are still cheap today, regardless of this lofty earnings multiple.
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ASX expert: Block shares are cheap today
The ASX expert is none other than Ed Cowan, fund manager at TDM Growth Partners.
As reported by the Australian Financial Review (AFR), Cowan has just made an appearance at the Sohn Hearts & Minds investing conference.
Speaking about Block in the context of its ownership of buy now, pay later pioneer Afterpay, Cowan told investors that he still looks at Block shares as a bargain. Here's some of what he had to say:
This is a business that is cheap by every metric. In the next six to seven years, Block will probably produce free cash flow – the equivalent of its current enterprise value…
PayPal grows single mid-single digits and also trades on five times gross profit. And we have Australian banks that don't know how to spell the word growth that trade on 15 times PE.
Many of Cowan's assumptions stem from Block's quarterly earnings report, which the company delivered last week.
As we covered at the time, this report revealed that Block enjoyed a 19% increase in revenues to $2.25 billion over the third quarter of its 2024 financial year compared to the same quarter last year.
Adjusted earnings before interest, taxes, depreciation, and amortisation (EBITDA) came in at $807 million, a near doubling of the $477 million from the prior corresponding quarter.
Block also anticipates that its full-year earnings for FY2024 will come in at $8.89 billion, an increase of 18% from the previous year. It is also expecting gross profit growth of "at least 15%" over 2025.
Foolish takeaway
This just goes to show that a seemingly pricey earnings multiple can still result in a potentially cheap stock if it is growing earnings at a fast rate. Let's see if Block shares can live up to these lofty aspirations.
