Deutsche Bank analysts said the firm believes Block (NYSE:SQ) has the ability to drive outperformance on both the top and bottom line, but despite the company's strong fundamentals, its shares have "materially underperformed."
As a result, the analysts, who have a Buy rating and $95 price target on the stock, listed various ways they believe SQ can "get its mojo back." They added that the firm believes it "will continue to take market share in its major business segments" and they "find the shares attractively valued."
They said they would like to see SQ set mid-term gross profit expectations, increase its scrutiny on marketing costs and headcount, drive Square volumes above industry, deliver outperformance in Cash App, Afterpay show consistency, highlight new sources of revenue and "be transparent."
"We would encourage SQ to move away from monthly updates and provide annual or mid-term goals that the company can consistently beat, which would drive higher share performance, in our view," said the analysts, who also believe SQ is at the forefront of emerging payment trends. "We would like to see more scrutiny on marketing costs and headcount growth, which SQ plans to grow 10% in FY23 despite big increases in headcount over the past few years."
"SQ needs to provide transparent quarterly disclosures and not come across as too 'scripted'," they added. "While we commend SQ for outlining a long-term plan balancing its investment and growth, we believe the company should put out a concrete timeline in order to give investors' confidence in SQ's commitment to the Rule of 40."