The Zacks Business Services Sector has struggled year-to-date, declining nearly 20% in value vs. the S&P 500’s decline of approximately 12.5%. However, the sector has provided a double-digit 12% return over the last month. Below is a chart illustrating the sector’s performance vs. the S&P 500 in several timeframes.
Image Source: Zacks Investment Research
A company residing in the sector that’s gathered a large amount of attention over the last several years is Block, Inc. SQ. Formerly known as Square, Block is a technology company focusing on financial services and digital payments.
In addition, Block is scheduled to release quarterly results after market close on Thursday, August 4th.
The company is currently a Zacks Rank #3 (Hold) with an overall VGM Score of a D. Let’s take a deeper dive and see how things shape up for the tech giant heading into the quarterly print.
Share Performance & Valuation
Year-to-date, SQ shares have been a victim of the tech sell-off, losing more than half their value and extensively underperforming the S&P 500.
Image Source: Zacks Investment Research
However, take a look at the chart below.
Image Source: Zacks Investment Research
Block shares have soared more than 20% over the last month, with buyers stepping in left and right.
While the year-to-date share performance is undoubtedly disheartening, the price action of SQ shares over the last month indicates that bulls have finally arrived, defending the stock at a high level.
SQ shares could be overvalued, as displayed by its Style Score of a D for Value. However, the company’s 2.5X forward price-to-sales ratio is well below its five-year median of 6.5X.
Image Source: Zacks Investment Research
Quarterly Estimates
Over the last 60 days, three analysts have lowered their earnings outlook for the quarter. In addition, the Zacks Consensus EPS Estimate resides at $0.17, reflecting a steep 74% decrease in quarterly earnings year-over-year.
Image Source: Zacks Investment Research
The company’s top-line is displaying some signs of softening as well. SQ is forecasted to generate $4.3 billion in revenue for the quarter, a 7.5% decrease compared to year-ago quarterly sales of $4.7 billion.
Quarterly Performance & Market Reactions
Block has repeatedly reported bottom-line results above expectations, exceeding the Zacks Consensus EPS Estimate in eight of its last ten quarters. Just in its latest quarter, the company recorded a sizable 50% bottom-line beat.
Top-line results have left much to be desired as of late, with SQ falling short of revenue expectations in three of its previous four quarterly reports. The chart below illustrates the company’s revenue on a quarterly basis.
Image Source: Zacks Investment Research
In addition, the market reacts well to bottom-line beats but poorly to EPS misses. Over its previous two EPS misses, shares have moved downwards each time. Following the company’s latest bottom-line beat, shares soared 35%.
Putting Everything Together
Block shares have been the victim of a deep double-digit valuation slash year-to-date, but buyers have been out in full force as of late, driving shares upwards. In addition, shares could be overvalued, as displayed by its Style Score of a D for Value.
Both the top and bottom-line are projected to register year-over-year decreases, and analysts have primarily been bearish for the quarter to be reported.
Block has repeatedly posted better-than-expected bottom-line numbers, but quarterly sales results have been disheartening as of late. Furthermore, the market reacts well to bottom-line beats but poorly to EPS misses.
Heading into the print, Block SQ carries an Earnings ESP Score of -4.8%.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
