Block (SQ) Stock May Be 12% Undervalued As Settlement Costs Loom

Block has seen its stock deliver a 70.2% return over the past three years, which naturally raises the question of whether that share price now lines up with the returns the business earns on its capital. With fresh headlines around regulation, cost cuts and product investment, the key issue for readers is how those moves ultimately feed into Block's ability to generate attractive returns on the money it deploys.

• A 70.2% gain over three years puts real weight on the idea that Block's recent share price already reflects the quality of the returns it earns on its capital, or that investors are expecting those returns to improve.
• The agreed in principle US$764 million settlement related to anti money laundering controls, along with workforce reductions, can reshape both Block's future compliance spend and its capacity to reinvest capital into Cash App, Square and AI projects that may support return on capital over time.
• What if you looked at Block through its earnings instead? See why Block's 116.1x P/E tells a different valuation story.

The stock's next move may depend on whether the returns Block earns on its capital today and what it can plausibly earn from here are strong enough to justify the current price.

If you want a clearer comparison of how fairly other businesses are priced relative to the returns they earn on capital, compare Block with the list of 33 high quality undervalued stocks.

Does Block Look Undervalued on Excess Returns?

The Excess Returns approach looks at how much profit Block can earn on shareholder capital above its own cost of equity. In this model, the inputs include a Book Value of $37.89 per share and a Stable EPS of $5.53 per share, with that earnings figure drawn from forward Return on Equity estimates from 10 analysts. With an Average Return on Equity of 12.44% and a Cost of Equity of $3.36 per share, the framework points to an Excess Return of $2.17 per share as the key driver of long term value.

The Stable Book Value assumption of $44.46 per share, based on forecasts from 7 analysts, suggests the engine for value creation is reinvested equity rather than dividends. On that basis, the Excess Returns projections put Block's estimated intrinsic value modestly above the current share price of $88.56. Because the agreed in principle US$764 million settlement over anti money laundering controls raises questions about future compliance spending and capital allocation, the gap between model value and traded price may reflect how investors weigh those ongoing costs. Find out what Block could be worth using our Excess Returns estimate.

The Block Narrative: What Would Justify Today's Price?

Narratives pick up where the valuation puzzle for Block leaves off and spell out which expectations on growth, margins and earnings would need to hold for the share price to sit meaningfully above or below where it trades today. Each one turns Block's implied fair value into a clear, trackable thesis about the business so you can see how that reasoning holds up over time, and they sit on Simply Wall St's Community page.

Block now splits opinion between those who see more upside from its AI and banking build out and those who think new risks already fill the price.

Bull case: 12% undervalued

This view comes from the analyst consensus Narrative on Simply Wall St, which leans on aggregated forecasts and price targets.

"Analysts expect Block to continue using its AI native operating model, Cash App banking products, and crypto offerings to support higher product velocity, embed more financial services, and deepen engagement across its ecosystems…"

Discover why this Narrative puts Block at 12% undervalued.

Bear case: 10% overvalued

This angle is drawn from the bearish analyst Narrative on Simply Wall St, which anchors to the most cautious targets and assumptions.

"Bearish analysts expect Block's heavier regulatory and security burden around Cash App, including settlement costs tied to past data breaches and ongoing compliance work, to continue pressuring earnings quality and valuation multiples…"

Explore why this Narrative puts Block at 10% overvalued.

Block's price is only one piece of the decision

Before you lean too heavily on any valuation model for Block, it is worth asking who is steering the ship, how their rewards are structured, and whether those incentives truly line up with your interests. See who runs Block and how they are paid.

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