Dave Inc. DAVE stock has shown outstanding growth over the past six months. The stock has skyrocketed 181%, outperforming the industry's 40.3% rally and the Zacks S&P 500 composite's 6.1% growth.
DAVE’s performance is significantly higher than that of its industry peers, Lesaka Technologies, Inc. LSAK and Nano-X Imaging Ltd. NNOX. LSAK has gained 13.3% and NNOX has risen 29% over the past six months.
Six Months Price Performance
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In the last trading session, the stock closed at $86.3, 25.7% down from the 52-week high of $108.5. The company is trading above its 50-day moving average, indicating a bullish sentiment among investors.
The remarkable rise in Dave’s shares in the past six months might compel investors to buy it. However, the question of whether the investors should buy the stock needs to be answered. Let us analyze the stock in detail.
DAVE’s Innovative Business Model
Dave’s primary product is its cash advance, which comes at $50-$250. U.S. customers use this product to avoid overdraft fees and utilize it in everyday life. Consumers who opt for expensive check cashing or payday loans turn to the services provided by DAVE. The product is versatile as it has three different methods for customers to borrow from the company.
An instant transaction using the Dave card is the first method, which comes with a 3% fee, and the company earns an interchange on transactions that average 2%. The second method is direct to the bank account through Visa Direct, which charges a 5% fee. The final method is an Automated Clearing House transfer to the bank account, which is free.
The company charges an initial transfer fee for swift transactions and does not charge any interest on the cash advances. This service is particularly appealing to customers. The cash advances made to customers get repaid from customers’ bank accounts as soon as their paychecks are credited. Hence, credit losses are low at 1.3% of the origination. Customers are appealed by the fact that the limit of cash advances increases from $25 to $500 after customers pay off cash advances a few times.
DAVE has taken advantage of AI and incorporated it into its credit model to identify who qualifies for a cash advance and the amount that they are eligible to receive. This technology helps the company in its call centers by resolving 90% of tickets without any agents’ involvement. This is the reason why Dave can offer its services effectively to its customers at a lower price than its competitors.
Apart from AI, the company has incorporated a machine learning algorithm rather than the FICO-based model used by traditional banks to evaluate historical spending, earnings and savings before any cash advances are made to customers. As a result, the company can disburse cash to its customers effectively without any setbacks to the credit quality.
Growing Members & Declining CAC Aid DAVE
Dave has witnessed a rise in new members across the past three quarters. In the first quarter of 2024, the company had 566,000 new members, which increased 26.5% in the second quarter and 19.3% in the third quarter.
The Customer Acquisition Cost (CAC) was $16 in the first quarter of 2024, which declined to $15 in the second quarter and remained flat in the third quarter. A rising customer base with a falling/consistent CAC indicates that it might be easy for the company to grow sustainably.
Member acquisition at an increasing scale is what DAVE has prioritized. It is driving growth of the monthly transaction member base in a cost-effective fashion. This strategy can enable the company to further strengthen its market position.
Dave Stock Appears Cheap
The DAVE stock looks cheap at present and appealing to investors. It is priced at 30.8 times forward 12-month earnings per share, lower than the industry’s average of 45.7 times.
DAVE’s Healthy Capital Returns
Return on equity (ROE), a measure of profitability, reflects how effectively a company uses its shareholders' investments to generate earnings. DAVE’s trailing 12-month ROE is 17.2% compared with the industry’s average of 3.4%.
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Dave’s Liquidity Beats Industry
The company has a strong liquidity position, with a current ratio of 6.81 at the end of the third quarter of 2024, higher than the industry’s 2.16. A current ratio above 1 suggests that the company can easily pay off its short-term obligations.
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DAVE’s Strong Top & Bottom-Line Prospects
The Zacks Consensus Estimate for the company’s 2024 revenues is pegged at $341.3 billion, suggesting 31.7% growth from the year-ago reported level. For 2025, the top line is anticipated to rise 21.6% year over year.
The consensus estimate for earnings in 2024 is pegged at $4.2 per share, whereas it incurred a loss of $4.1 a year ago. For 2025, the bottom line is anticipated to rise 22.2% on a year-over-year basis.
Right Time to Buy DAVE
Dave’s business model and product versatility enable the company to expand its customer base and lower CAC, setting it on the path to long-term success. It has incorporated AI and machine learning into its business, helping it provide its services to consumers effectively.
The stock looks inexpensive, provides greater returns on capital than the industry and has a strong liquidity position. Its strong top and bottom-line prospects look encouraging.
We suggest investors buy the stock now on the back of the aforementioned positive factors to enjoy higher capital returns in the long run.
DAVE sports a Zacks Rank #1 (Strong Buy) at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
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