Block (ASX: XYZ) Five Quarters of Stronger Gross Profit, Is This the Buy Signal?

Is Block now a buy after five straight quarters of gross profit growth?

Block (ASX:XYZ) is a company we have been covering for some time, and the latest result gives investors a stronger case to revisit the stock. The share price rose 5% after Block delivered US$2.9 billion in gross profit, with Q1 marking a clear step-up in profitability.

The market is now forecasting FY26 EBITDA of around US$4.5 billion, implying a strong growth outlook from here. On our numbers, that puts Block on a blended EV/EBITDA-to-growth ratio of just 0.1x. (This is basically Peter Lynch’s PEG ratio, but for EBITDA growth). That is a very low multiple for a business showing this level of profit acceleration. But the market has been very timid with this stock, with crypto winter in place, it has been a very choppy year to say the least.

On FY27 and FY28, the EV/EBTDA-to-EBITDA-growth multiples are just 0.33x and o.45x, respectively, so still very attractive!

The key question is now whether Block can sustain its profitability momentum. If it can, we would rate the company as significantly undervalued.

The gross profit growth trend is hard to ignore. Across the last five quarters, growth has moved from 9%, to 14%, to 18%, to 24%, and now 27%. Even during this crypto winter.

It’s not looking like a one-quarter spike. It looks like a business whose profitability profile is structurally improving, especially with the headcount cuts underway.

All-Time High AOI Margin. The Leverage Is Real.

Cash App drove most of the growth, not just in this quarter alone, but in general.

Gross profit in the segment rose 38% to US$1.9 billion, making it clear where Block’s momentum is coming from. Square, the merchant payments business, was more stable, with gross profit up 9%. That mix is important for investors. Cash App is the growth engine, while Square remains the steadier cash flow platform.

Profitability also moved sharply higher. Operating income reached an all-time high of US$728 million, with margins hitting 25%.

Another core reason for this is because within the Cash App ecosystem, the financial services mix, specifically lending, is becoming a much larger part of the story. Lending gross profit across the platform grew 55%, with Block’s credit products implying gross margins of around 93%. Almost every extra dollar of lending gross profit has the potential to flow through to operating income.

One-off restructuring charges masking a strong business

But what is distorting this bullish growth story is the February 2026 organisational restructure, which raised non-operational costs. But investors should understand that this also looks like a deliberate reset to improve the operating leverage of its platform and headcount structure.

Block recognised US$852 million of one-off charges, including US$109 million in restructuring SBC and US$743 million in contingencies and related charges. These are not recurring costs. The cleaner read is that Block now has a leaner operating structure, just as higher-margin revenue streams are starting to scale.

Two Flywheels. One Compounding.

Within the Cash App ecosystem, apart from improved margins, inflows per active user are accelerating.

More users are receiving payroll, depositing funds more regularly and using Cash App as a primary banking service. Transaction inflows were up 10% this quarter, which points to deeper engagement across the platform.

Block also raised its Q2 guidance, which tends to send a signal that they believe this momentum will likely continue, with gross profit expected to reach ~US$3 billion, representing 20% year-on-year growth.

If Block can maintain this momentum, the market may need to reassess the stock. Profitability is improving, Cash App engagement is strengthening, and higher-margin financial services are becoming a larger part of the business.

That creates a credible path for a substantial re-rate.

Block is starting to look like Afterpay at $50

Block looks like Afterpay around 2020, which, after a surge to $50, the market deemed it overvalued, but relative to growth, the stock still had more room to run, and it did. Block is starting to take similar characteristics to this potential re-rate, and the guidance lift is a supporting factor.

What would break this thesis?

Even though Block looks very cheap relative to its growth outlook, credit quality is the key risk to watch.

The lending platform is now growing faster, and Cash App’s small loan products are naturally exposed to higher-risk users. Right now, around 3.16% of what Block lends to this group is not being paid back.

The 3.5% threshold is the warning line.

If losses move above that level while Block is rapidly scaling loan volumes, it could suggest the company is stretching credit quality to chase growth. That would change the investment case quickly, because the market is rewarding Block for profitable growth, not growth funded by weaker underwriting.

For now, the setup still looks attractive. We currently rate the stock a strong buy. But this is the metric investors need to track closely over the next few quarters.