Should investors follow the advice of big names on Wall Street? One challenge in doing so is that sometimes analysts have very different takes. Fortunately, there's some agreement on other occasions.
Consider these two companies: Block(NYSE: SQ) and Intellia Therapeutics(NASDAQ: NTLA). Both are among picks by Cathie Wood, CEO of a famous investment management firm. These stocks also have consensus price targets from Wall Street analysts that imply significant upsides.
Should you consider purchasing shares of Block and Intellia Therapeutics on this basis? Let's find out.
1. Block
Block has had a challenging year: The company's shares are down 14% year to date. Though sales are still moving in the right direction, growth rates have slowed in the past few years and are, to some extent, influenced by Bitcoin-related revenue. This area of Block's business is somewhat unpredictable, something the market doesn't like.
On the other hand, Block is making progress on the bottom line; the company has turned in profits for the past three quarters in a row. If it can sustain that profitable growth, the stock could bounce back. But could it live up to the Street's expectations in the next year?
Analysts' average price target for the stock is $87.12, representing an upside of about 32% over its recent share price of $66.05. My view is that Block is unlikely to hit this target, because there are no significant catalysts ahead for the stock. While Bitcoin-related fluctuations could help its revenue growth jump, they could also do the opposite -- it's hard to predict which.
Furthermore, Block doesn't seem to be deeply undervalued. True, its forward price-to-sales ratio is 1.6, and the "undervalued" range typically starts at 2. However, Block's forward price-to-earnings is 18.6, a bit higher than the average of 16 for the financial industry.
Beyond the next 12 months, could the company deliver excellent returns over the long run? In this department, I think there are solid reasons to be optimistic. Block's core ecosystems continue to perform well. They include its suite of tools for small and medium-sized businesses through Square. And its peer-to-peer payment app, Cash App, now offers various options that compete with banks, from direct deposits to stock and crypto trading to a debit card.
In the second quarter, Square gross profit jumped by 15% year over year to $923 million, while Cash App's came in at $1.3 billion, 23% higher than the year-ago period. Total gross profit increased 20% year over year to $2.23 billion. And net income of $195 million was much better than the net loss of $102 million reported in the year-ago period.
Block has generally upgraded its platform by offering more services, thereby attracting more customers. The company's solid position in fintech and large existing ecosystem make it a good pick to profit from long-term opportunities in the industry.
2. Intellia Therapeutics
In the past few years, investors have moved away from somewhat promising but speculative and unprofitable businesses. That description fits Intellia Therapeutics to a T. The biotech, which focuses on gene editing, looks like an innovative company. It currently has no approved products, but Intellia is making steady progress.
The company's leading candidate is NTLA-2001, which is being developed to treat transthyretin (ATTR) amyloidosis, a rare disease caused when a transport protein called transthyretin fails to fold properly. It leads to various symptoms, including stomach pain, difficulty breathing and walking, and more. There are two types of ATTR amyloidosis: the hereditary version, which affects some 50,000 people worldwide, and wild-type (which comes with aging), which affects between 200,000 and 500,000 people.
Intellia is now enrolling patients for a phase 3 study of NTLA-2001 in treating ATTR amyloidosis with cardiomyopathy (a group of heart-related problems). It also expects to start another late-stage study in hereditary ATTR amyloidosis by the end of the year. There are as yet no cures for this disease; NTLA-2001 could be the first.
The biotech does have several other pipeline candidates. NTLA-2002, a potential therapy for hereditary angioedema (a disease that causes swelling under the skin) could start a phase 3 study this year after passing phase 2 clinical trials. And Intellia could have several catalysts, mainly data readouts from its ongoing studies, in the next 12 months. If the data is positive across the board, the company's shares will almost certainly soar.
However, Wall Street's target stock price of $67.92 implies a 282% upside over its recent share price of $17.77. In my view, that seems too optimistic a goal to reach within 12 months, even considering how volatile biotech stocks can be. Gene-editing therapies are expensive and complex to administer, which often limits their revenue potential, even when there are no other treatment options for a disease. That adds to the risks in investing in Intellia right now, beyond the fact that its shares will drop off a cliff if there are significant clinical or regulatory headwinds.
So, Intellia Therapeutics is a somewhat risky play. If you're comfortable with heightened volatility, you might want to consider initiating a small position in the stock, considering how much shares have fallen in recent years and how much they could rise if the company's programs progress without a hitch.
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Prosper Junior Bakiny has positions in Block. The Motley Fool has positions in and recommends Bitcoin, Block, and Intellia Therapeutics. The Motley Fool has a disclosure policy.
