Contemplating the Purchase of This Notable Cathie Wood Share, Currently Undervalued Under $100?
The typical investor can quickly find new investment concepts by monitoring prominent asset managers. One of these managers is Cathie Wood, who leads Ark Invest, a firm concentrating on disruptive and progressive enterprises.
In the Ark Innovation ETF, Ark Invest's flagship product given to customers, the digital finance company Block (SQ -1.45%) holds a prominent spot. As of Nov. 21, it ranks as the eighth-largest position.
Should an investor acquire this top Cathie Wood stock while it trades beneath $100 per share?
Bullish on digital finance
Cathie Wood and her team at Ark Invest are enthusiastic about various technological trends. One area they are optimistic about is the digital finance sector. Particularly, the excitement originates from how companies provide comprehensive financial solutions for their clients' various financial requirements.
Block falls within this investment theme. Ark Invest believes that in the future, Block's vertically integrated offerings, such as digital wallets, bank accounts, and debit cards for consumers, and payroll, working capital, and bill pay for businesses, will result in a powerful and more widely adopted closed-loop payments system. Block is leading this movement.
Indicative of how much Ark Invest is optimistic about the digital finance niche, the firm offers the Ark Fintech Innovation ETF, focusing mainly on such businesses. Block ranks as the third-largest holding in that fund, accounting for 6.3% of the total assets.
Block's attractive qualities
Investors might be drawn to Block's potential for growth. Through the first nine months of 2024, the company reported a 20% year-over-year increase in gross profit. Both essential segments, Square and Cash App, saw double-digit gains in this key performance indicator.
On the merchant side, Square processed $59.9 billion in gross payment volume during the three-month period ending Sept. 30. The segment keeps attracting larger sellers.
On the consumer side, Cash App now has 57 million monthly active users. Management continues to push for further adoption of the Cash App Card, which can increase spending activity and ultimately boost the revenue and gross profit that Block generates.
Similar to many tech-oriented businesses in recent years, Block has prioritized streamlining its operations and boosting efficiencies. This is becoming increasingly evident.
During the third quarter, the company reported $323 million in operating income. This is a substantial shift from the $10 million operating loss reported during the same period in the previous year. The leadership team raised their full-year 2024 guidance, now targeting an adjusted operating margin of 18%.
In theory, Block's business model has the potential to scale profitably. Significant expenses, such as product development and sales and marketing, should contribute less to total revenue in the long term, highlighting operational leverage. Shareholders need to remain vigilant to guarantee this strategy is effective.
Betting on earnings growth
Block's shares once dominated Wall Street's performance charts. From the company's initial public offering in November 2015 to the stock's peak in August 2021, the share price soared more than 2,000% higher. This was a tough act to follow.
However, things have taken a turn since then. As of this writing on Nov. 21, the stock sits 67% below its all-time high. The market has adopted a more skeptical attitude toward the company and its future prospects.
Investors considering buying shares must pay a forward price-to-earnings (P/E) ratio of 25.9. This is reasonable, but the stock should only be purchased by those who believe the company's top- and bottom-line growth will remain steady and robust.
Cathie Wood believes this will be the case. Based on recent trends, I concur this may be the outcome as well, making the stock an appealing buy below $100.
Given Cathie Wood's optimism towards the digital finance sector, she has included Block as a significant holding in the Ark Fintech Innovation ETF, making it the third-largest position in the fund. This fund primarily focuses on businesses within this niche. (Contains: 'finance', 'investing', 'money')
Due to its strong growth potential and consistent performance, Block has garnered support from Ark Invest and other investors. The company reported a 20% year-over-year increase in gross profit during the first nine months of 2024, with both Square and Cash App segments seeing double-digit gains. (Contains: 'finance', 'investing', 'money')
