Is Block (SQ) a Wise Investment as Analysts Show Confidence?

Before diving into a stock, savvy investors often look to Wall Street analysts for their outlook on potential Buy, Sell, or Hold actions. These analysts' ratings can influence a stock's market price, prompting the question: should investors care about these recommendations?

These considerations are particularly relevant for Block (SQ), a financial services and mobile payment company. Block has received an average brokerage recommendation (ABR) of 1.67, ranking it between a Strong Buy and Buy. This score is based on the input of 40 brokerage firms, with 26 giving a Strong Buy rating and three recommending a Buy.

Unpacking the Average Brokerage Recommendation (ABR)

The ABR for Block might suggest it's a stock worth purchasing, but is it wise to base investment decisions solely on these recommendations? Studies cast doubt on the ABR's efficacy, with findings indicating that brokerage firm's recommendations don't reliably lead investors to stocks likely to appreciate in value. The root of the problem could be a conflict of interest, as evidenced by a pattern where analysts provide many more favorable ratings than cautious or negative ones, suggesting the possibility of bias.

The Zacks Rank Alternative

Investors seeking more reliable indicators might consider the Zacks Rank, which rates stocks on a scale from 1 (Strong Buy) to 5 (Strong Sell) based on earnings estimate revisions. This quantitative model has a solid track record in forecasting near-term price performance.

Unlike the ABR, the Zacks Rank stays current with changing business trends affecting earnings estimates and does not carry the same potential conflicts of interest that brokerage recommendations might have. It also assigns its ranks evenly across all stocks covered by analysts, ensuring a balanced distribution of ratings.

Evaluating Block's Investment Potential

With regard to Block, there's a recent optimistic tendency among analysts' earnings projections. The Zacks Consensus Estimate for Block's current year earnings has jumped 10.3% in the past month. This consensus is a compelling reason to believe that Block's stock price can rise in the near term. As such, Zacks has rated Block at a #2 (Buy).

Investors might find this Buy-equivalent ABR and the positive Zacks Rank compelling reasons to consider adding Block to their portfolio, but it's important to remember that these tools should complement rather than substitute for one's investment research.

Investing, Analysis, Stocks