Thursday, February 22, 2024

Hindenburg knocks the Block off (?)

Jack Dorsey’s tech company found out a lot about itself from the Hindenburg Research report, and its stock price dropped to the level of the secret labs in Stranger Things. In just one day, the future of Block became much foggier. Let’s try to find out how analysts estimated Block stock before the latest news and what this news revealed.

Firstly, we need to talk about who Hindenburg Research is. Maybe you’ve heard this name before, maybe not. But you are likely to see the consequences of the Hindenburg investigation.

Do you remember the meme where bony Death with the scythe in the scary outfit knocks at different doors? That’s these guys. They analyze the activities of public companies, release negative reports and profit by short-selling stocks of these companies.

As would be expected, it’s difficult to predict the next investigation and its goal. But there are many different economic events that affect the market and can help you to forecast its next movements. To stay in the loop with these events, you can use economic calendar – it will give you all you need to know.

The most famous cases connected with Hindenburg Research are electric manufacturer Nikola and Indian conglomerate Adani Group. Nikola was characterized as “an intricate fraud” and Adani Group was accused of financial irregularities and market manipulation. The stocks of both companies plummeted in value. The world hasn’t seen such a fall since Icarus and Daedalus. Don’t fly too close to the sun.

Before the Hindenburg report, most analysts considered Block to be a lucrative company. The average target price of expert forecast in the last months was nearly $97 – about +30% from the pre-report quotes. But now it’s hard to be guided by these opinions – and we can see why on the chart below.

The Hindenburg reported that the flagship app of Block, which is named Cash App, inflated its user base and understated its customer acquisition costs. Moreover, referring to former employees, researchers stated that 40%-75% of Cash App accounts were fake, involved in fraud, or were offshoots of other accounts.

Also, Block is charged with supporting criminals – a segment of the population which is typically underbanked. Hindenburg believes that it was easy for fraudsters, scammers and even human traffickers to open accounts in Cash App.

In response to the report, Block claimed that it is going to work together with SEC and wants to seek legal action against Hindenburg Research because the company finds allegations concerning Cash App inaccurate and misleading.

What about Block stock –  it’s hard to make forecasts for the future. However, some analysts have already adjusted their ratings for SQ and these don’t sound too bad – Sell and Hold. But we recommend you do your own research before any trades. Especially in those situations when the stock is in the spotlight.