A Major Change in My Portfolio-Everybody is Wrong About Block, and Why I am now IONQ Pilled
If you have been a dedicated Pax Romana Capital Reader for a while, you know that once I lose faith in a company, that company’s demise is relatively immediate in my portfolio. I could sense that loss of faith happening with Block. I was trying to find ways to justify holding the company, but I was growing frustrated with lowering revenues and the recent price jump was giving me great reason to sell. However, I could not bring myself to sell completely. While I have lost some faith in the company, a matter we will get to, I could not force myself to chop my position away entirely. I did something pretty new for me actually, I found a compromise, split the difference internally, and added a new position totally out of the blue. IonQ is now a part of the Henry “Money-Maker” Beall portfolio.
Let’s start at the beginning. Eleven months ago, I bought Block stock. I bought into the company because I was optimistic about its payment processing and Cash App. Fast-forward eleven months, and I had picked up about 10% growth, but that was after buying when the price had fallen. The stock popped 7% on Trump’s election due to his very pro-crypto stance. Then, the stock fell 10% but traded up to a 2% loss after an earnings report in which EBITDA grew faster than expected but revenue did not.
Following this, I began to get worried. Revenue only grew 6% compared to last year, which is about half of what I would want from a growth company like them. Much of the optimism seemed to be crypto-related, but I fear that is a foolish dream. I could see a future, maybe, where cryptocurrency becomes much more popular under Trump and where crypto even becomes usable in some transactions, maybe, but I do not see a future where Block wildly dominates this market. Investors seemed to be pricing in a crypto-centered future that I saw as unrealistic, to say the least. At this point, I was getting a bit nervous. Then, the stock jumped 22% over the next three days.
The stock exploded upwards because of an analyst’s recommendation. An analyst at Piper Sandler put an $83 price target (already exceeded) and an overweight rating on the company due to expectations for next quarter, gross payment volume growth, and Afterpay, a buy now pay later company that Block purchased recently. I think BNPL (buy now pay later) will be massively popular later (because Americans love to spend beyond their means) and because BNPL companies like Afterpay provide protection in the case of a downturn.
This recommendation did change my mind a bit, but I could not get away from revenue growth numbers that were middling. Every article I read that was bragging about earnings growing faster than expected worried me. At the size Block is at, I frankly do not care too much about the bottom line, mostly the top. I want revenues to grow massively, then at a later point, find profits.
I could not figure out internally whether I should buy or sell. I did know that I thought the stock was overvalued at this point. An analyst who was more optimistic than I was had the fair price at $83, but the stock was already at $86. I decided that I would do something I have never done before, compromise on a position.
When I sell out of a position, unless I am just re-adjusting because a position has become too concentrated, (Costco becoming 30% of my portfolio because it grew 60% in six months) I sell out of all of it. This is mostly just because I love being concentrated in a portfolio. I think diversification is for suckers, or at least, having a ton of positions to try and be safe, is for suckers. This is the plan I came up with though:
I sold out of 2/5ths of my position. I will hold this smaller position till Block reports its earnings for the fourth quarter/year. If earnings are as I had hoped or better, I will hold this Block position. If they are not, I will sell out. With the money I got from selling, I bought into a quantum computing company, IonQ.
In the next AWESOME PAX ROMANA CAPITAL article, I will discuss why I picked IonQ.
