This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
What happened
A funny thing happened to Block (NYSE: SQ) stock today (well, funny unless you own it -- if you own it, it's just weird). Investment megabank Goldman Sachs initiated coverage of Block (formerly known Square) with a coveted buy rating and a $173 price target implying 22% upside in the stock.
But instead of going up in response to the upgrade, Block stock went down 3.3% as of 1:50 p.m. ET.
So what
StreetInsider.com has the details.
"SQ is well positioned to benefit from Cash App's growing monetization from new product features (e.g., tax preparation, card spending, cash management, stock investing, Bitcoin)," writes Goldman, "while enjoying ongoing user growth from the network effects of P2P payments, as well as Square's continued share gains" among small and medium businesses.
The analyst is also optimistic about Block's purchase of Afterpay, predicting that its entry into the buy now, pay later market will "generate synergies and integrate the Square and Cash App ecosystems through the addition of new consumers and merchants, as well as helping to establish commerce & brand discovery features into Cash App."
Now what
So far, so good -- but why does any of the above add up to investors selling Block stock today, instead of buying it?
Honestly, I don't think they do. Rather, what I suspect we see happening here is investors taking advantage of Goldman Sachs' positive note to cash in some of their recent profits from Block stock. Just two weeks ago, Block stock was selling for less than $95 a share -- but it tipped the scales at nearly $147 last night, a 55% improvement in the space of 16 days.
Recall, too, that with only $166 million in trailing net income, Block stock currently costs nearly 500 times trailing earnings, which is quite a lot to pay even for a company pegged by analysts for tremendous 37% annualized earnings growth over the next five years.
Simply put, Block stock had a great run-up over the past couple of weeks. It was due for a pullback -- no matter what Goldman Sachs had to say about it today.
This article was originally published on Fool.com. All figures quoted in US dollars unless otherwise stated.
