Block (SQ 1.74%) was once the subversive fintech innovator, launching revolutionary new products that changed how people shop and spend. It sparked a transformation in merchant payments with its little square credit card reader that attached to a smartphone, and it has since created multiple convenient solutions for merchants and consumers.

However, it might have gone too far for some investors, and it's been dealing with other problems, too. Block stock is down as much as 76% from its highs. Is this a bargain buy or a value trap? Let's lay out some of the story and decide.

Buy: Block is growing and has a long runway

Block has demonstrated incredible growth over the past few years in both of its businesses, Square sellers services and Cash App. Merchants continue to join the sellers platform, which automates and connects services across a business and simplifies management. It's targeting more mid-market accounts, moving up from the small businesses that are its bread and butter, and enterprise users are higher-paying. Cash App targets individual users with financial services including bank accounts and credit cards and is one of the most popular peer-to-peer payment services.

Square revenue increased 11% year over year in the 2024 first quarter and Cash App revenue increased 23%. Total revenue rose 19%.

Management sees a way to bring these businesses together, offering more banking services for merchants. It also sees a large market opportunity in targeting families for Cash App. It forecasts a combined opportunity of more than $200 billion, and it has many exciting innovations planned.

Block has a track record of dreaming up real solutions for financial services that are easy to use and solve real pain points, and I would be confident in its ability to keep this up.

Sell: Investors don't love Block stock right now

As I've said many times, Jack Dorsey's seeming obsession with Bitcoin is rubbing some investors the wrong way. The initial enthusiasm made sense, and many companies have invested in Bitcoin or cryptocurrency capabilities. But few companies have made such a splash about it or incorporated it into its main business the way Block has, including changing its name from Square to reflect its commitment to blockchain technology.

Dorsey addressed this is in his most recent shareholder letter, but his message wasn't different from before. He sees Bitcoin as a native internet currency, but he did try to reassure concerned shareholders that Bitcoin-related projects account for less than 3% of total resources.

Even if that's the case, Bitcoin has a strong impact on the financial results. Without Bitcoin, total revenue increased 14% year over year in the first quarter -- it slices off 5 percentage points of the total increase. Bitcoin also took up most of Dorsey's thoughts in the letter, indicating that it's going to continue to be a strong influence on the overall business direction.

Another issue is Block's profitability. It has invested in creating a world-class platform and changing the landscape for merchants and users, but that's coming at a heavy cost. Investors will only tolerate soaring expenses and losses for so long. Block has addressed this by reducing headcount and moving toward more automation, and it's made some progress. Operating income was $250 million in the 2024 first quarter, and net income was $472 million, after several quarterly losses.

Warren Buffett has quipped that you don't have to make your money back the way you lost it. If you've lost confidence in Block stock and there are better opportunities elsewhere, there's nothing wrong with closing your position.

Hold: It's likely to rebound

There's merit to holding onto dropping stocks that have the potential to make a comeback. If you've done your due diligence and feel confident in Block's turnaround story, you could hold onto Block stock. Holding great stocks through thick and thin and not panic selling is the key to great long-term investing.

What do I think? I think that if you don't own Block stock, now isn't the best time to buy. It's definitely cheap, trading at only 1.7 times trailing-12-month sales. But that just underscores what the investing community thinks about its prospects right now. There's always some contrarian investor who makes a load of money on these kinds of bets, but it's really kind of like betting. There's risk here, because it isn't clear that Block can sustain improving profits, and it's still focusing outside of its core business. I would watch and wait to see if the investing thesis becomes more solid.