Block vs. Clover: Which Point of Sale (POS) Stock is a Better Buy?

Headquartered in San Francisco, Block (Formerly Square), Inc. (SQ) is a fintech company engaged in creating instruments that enable merchants to accept card payments. SQ also provides multiple auxiliary tools and services for sellers. Founded in 2014, Clover Health Investments, Corp. (CLOV) is a Tennessee-based healthcare company that provides Medicare advantage insurance services. 

Both stocks have significantly underperformed the broader market in 2021, presently trading near their respective 52-week lows. Year-to-date, shares of SQ have plunged 23%, while CLOV has tanked down 75% over the same period. 

Keeping that in mind, today I’ll analyze and compare both of these stocks to determine which one presents a better buying opportunity at current levels.

Recent Developments 

On December 14th, Block released the new feature for its Cash app, allowing users to gift bitcoin and stocks. In addition, the company said, “you don’t need to own stock or bitcoin to gift it.” Users can purchase the gifting asset via their debit cards as well. This feature will likely attract new customers, positively reflecting in the company’s coming top and bottom-line figures.     

On November 15th, Clover Health announced an upsized public offering of about 52.2 million shares at 5.75 per share. With projected gross proceeds of about $300 million, the company plans to spend fresh funds for working capital and general corporate purposes. Obviously, the dilution of shareholders’ equity didn't impress investors, pushing CLOV stock below the $5.00 threshold. 

Recent Quarterly Performance & Analysts’ Estimates

After reporting lower-than-expected Q3 earnings on November 4th, shares of SQ dropped over 3% in after-hours trading. In Q3, SQ’s revenue increased 26.7% year-over-year to $3.84 billion, however, the company missed Wall Street consensus by $640 million. The increase in revenue was mainly driven by a 40% and 11% increase in transaction-based and bitcoin revenue, respectively. Also, SQ’s Non-GAAP EPS has been reported at $0.37, standing in line with consensus. 

For the fourth quarter, the analysts expect SQ’s EPS to stand at $0.25, representing a 21.47% decrease year-over-year. However, a $4.06 billion average revenue estimate for the current quarter indicates a 28.39% growth. 

Clover Health Investments' total revenue for its third quarter, ended September 30th, 2021, increased 152.7% year-over-year to $427.16 million, surpassing analysts' estimates by $14.06 million. The lion's share of CLOV's total revenues made up for premiums earned and Direct contracting revenue, which totaled $426.31 million in Q3. Additionally, the company disclosed a Non-GAAP Q3 EPS of ($0.08), topping analysts' consensus by $0.15.

However, the company's operation expenses grew 202.3% YoY to $576.42 million in Q3. Also, its net loss for the quarter was $34.53 million, compared to a net income of $12.76 in the third quarter of 2020. As of September 30th, 2021, the company had $588.7 million in cash, cash equivalents, and investments.

Analysts reached a consensus estimate of ($0.23) EPS for the fourth quarter, representing an improvement compared to the year-ago value. Besides, the $409.15 million average revenue projection for the next quarter implies a 146.13% increase year-over-year.  

Comparing Options Market Sentiment 

Looking at the January 21st, 2022 option chain for both SQ and CLOV, let's figure out the expected price movement by utilizing the long straddle options strategy. So, my calculations indicate that SQ stock could rise or fall by about 11.21% by the January expirations from the $170.00 strike price. Applying the same approach, CLOV stock is estimated to rise or drop by around 20% from the $4.00 strike price. Also, let's take a closer look at the calls/puts ratio as well. In SQ’s case, the open calls/open puts ratio at the $170.00 strike price comes in at 0.20x, implying a bearish options market sentiment. For CLOV, the open calls/open puts ratio at the $4.00 strike price is 1.3x, showing a relatively neutral options market sentiment.  

Conclusion

At the moment, I believe SQ is the better buy. Although CLOV reported solid revenue growth, its costs increased as well, therefore it’s still unknown when the company will start consistently reporting profits. In addition, Clover's relation to Reddit could cause significant fluctuations in its stock price, making it a riskier investment. 

SQ shares were trading at $167.98 per share on Wednesday morning, down $2.49 (-1.46%). Year-to-date, SQ has declined -22.82%, versus a 25.62% rise in the benchmark S&P 500 index during the same period.

Oleksandr Pylypenko has more than 5 years of experience as an investment analyst and financial journalist. He has previously been a contributing writer for Seeking Alpha, Talks Market, and Market Realist.

More...