Block, Inc (XYZ)

Conclusion

Block, Inc (XYZ.US) builds commerce and financial products through two segments, Square, which serves merchants with payments, software and hardware, and Cash App, a consumer finance app. At a price of 88.56 USD on 2026-11-09, the market capitalisation is 48.22 billion USD.

The verdict is undervalued. The fair value band runs from 114.60 to 171.90 USD, with a midpoint of 143.25 USD and a margin of safety of 61.8% at the current price. Today's multiples sit well below their own ten-year medians: the price-to-earnings ratio is 104.6x against a median of 190.9x, and the price-to-book ratio is 2.1x against 12.6x. The discounted cash flow gives 65.51 USD per share, below the current price, using a discount rate of 17.4%. The reverse DCF implies revenue growth of 20.9% a year, close to the 20.6% revenue compound growth delivered over five years. The fair value from historical multiples is 221.00 USD, a figure that rests on a very different earnings history, so it should be read with care.

What holds the case up is the cash generation: free cash flow conversion is 748.9% on a trailing twelve-month basis and 116.6% over five years, and the company holds net cash, with net debt to EBITDA at -0.54. Revenue growth is the third pillar, with a five-year compound rate of 20.6%. What would break it is returns: ROIC is 3.3% against a WACC of 15.6%, a gap the model labels as destroying value. Interest coverage of 4.43 is on watch, and the share count has grown at 5.3% a year over five years, so per-share gains depend on the growth continuing.

Financial health

Financial strength is grey, because the company is a financial business for which debt is part of its trade. The balance sheet itself is sound: the current ratio is 2.23 and the quick ratio is 1.48, net debt to EBITDA is -0.54 (a net cash position), and debt to equity is 0.33. Interest coverage of 4.43 is on watch. The Altman Z-score of 2.81 sits in the grey zone. The Altman model was designed for manufacturers, so it is a rough guide for a company like this one. The Ohlson insolvency model does not apply to a financial business, so no insolvency probability is given.

Earnings quality

Earnings quality is yellow: cash conversion and the Beneish reading support the case, while share dilution and the Piotroski score pull it down. Free cash flow conversion is 748.9% on a trailing twelve-month basis, and 116.6% over five years. Accruals stand at -3.3%, which means reported earnings are backed by cash. Stock-based compensation is 4.5% of revenue, and free cash flow after it is 2.29 billion USD. The share count has risen at a compound rate of 5.3% over five years. The Piotroski score is 6 out of 9. The Beneish M-score is -2.24, which is unlikely to signal manipulation. The company beat earnings estimates in 5 of the last 8 quarters, with an average surprise of 58.7%. Analysts have cut the current-year estimate in the last 30 days, with 8 downward revisions against 5 upward, while next-year estimates rose 3.9% over 90 days, with 10 upward against 5 downward.

Profitability

Profitability is yellow. Margins are well above their own history: the gross margin is 47.5% against a ten-year median of 35.6%, the operating margin 8.6% against 0.2%, and the net margin 1.8% against 0.5%. The return on invested capital is the weak point. ROIC is 3.3% against a WACC of 15.6%, giving a ROIC minus WACC value of -12.3%, which the model labels as destroying value. The five-year median ROIC is 6.4%. Return on equity is 2.0% on a trailing basis. The DuPont split for 2025 shows a net margin of 5.4%, an asset turnover of 0.61 and an equity multiplier of 1.78, so leverage does not inflate the return. The low return reflects the thin asset base-to-profit conversion, not leverage.

Growth

Growth is green. Revenue grew at a compound rate of 11.3% over three years, 20.6% over five years and 34.3% over ten years. Revenue rose in 9 of the last 10 years. Earnings per share grew at a compound rate of 36.5% over five years, and free cash flow per share at 662.3% over three years, a rate that reflects a low starting base. The growth delivered in recent years is slower than the decade figure, and the three-year rate of 11.3% is the number to watch against the 20.9% growth the reverse DCF implies.

Valuation

Valuation is green, and the verdict is undervalued. Today's multiples are far below their ten-year medians: the price-to-earnings ratio is 104.6x against 190.9x (a premium of -45.2%), EV to EBITDA is 36.2x against 91.2x (-60.3%), price to free cash flow is 14.0x against 134.6x (-89.6%), price to sales is 1.9x against 3.1x (-40.1%) and price to book is 2.1x against 12.6x (-83.3%). The discounted cash flow gives 65.51 USD per share, using a discount rate of 17.4%, 20% growth in the first stage and 2.5% terminal growth. The fair value band of 114.60 to 171.90 USD is an order of magnitude built on fixed assumptions, including a 5% equity risk premium and capped growth, and it is not a price target. The reverse DCF implies growth of 20.9% against 20.6% delivered over five years. The beta of 2.56 means the stock moves much more than the market. The company pays no dividend.

Risks

The main risk is returns on capital. A ROIC of 3.3% against a WACC of 15.6% means each new dollar invested earns less than its cost, so the growth case depends on margins improving or capital needs falling. Interest coverage of 4.43 leaves less room if earnings fall, and the on-watch label reflects that. Share dilution of 5.3% a year reduces the per-share value of growth. The fair value from historical multiples of 221.00 USD sits far above the band, and the DCF gives a lower figure than the price, so the verdict depends on which method the reader trusts. Not available: a debt maturity schedule, revenue by segment, and the insolvency probability, since the model does not apply to this kind of business. This analysis does not cover those items.