Dave Inc.'s (NASDAQ:DAVE) 86% Share Price Surge Not Quite Adding Up

Despite an already strong run, Dave Inc. (NASDAQ:DAVE) shares have been powering on, with a gain of 86% in the last thirty days. The last 30 days were the cherry on top of the stock's 1,356% gain in the last year, which is nothing short of spectacular.

Since its price has surged higher, given close to half the companies operating in the United States' Consumer Finance industry have price-to-sales ratios (or "P/S") below 1.6x, you may consider Dave as a stock to potentially avoid with its 3.3x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Dave

What Does Dave's P/S Mean For Shareholders?

Recent times have been advantageous for Dave as its revenues have been rising faster than most other companies. It seems that many are expecting the strong revenue performance to persist, which has raised the P/S. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dave.

What Are Revenue Growth Metrics Telling Us About The High P/S?

Dave's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

Retrospectively, the last year delivered an exceptional 30% gain to the company's top line. Pleasingly, revenue has also lifted 117% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the seven analysts watching the company. That's shaping up to be similar to the 14% per annum growth forecast for the broader industry.

With this in consideration, we find it intriguing that Dave's P/S is higher than its industry peers. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of revenue growth is likely to weigh down the share price eventually.

What Does Dave's P/S Mean For Investors?

Dave's P/S is on the rise since its shares have risen strongly. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Analysts are forecasting Dave's revenues to only grow on par with the rest of the industry, which has lead to the high P/S ratio being unexpected. When we see revenue growth that just matches the industry, we don't expect elevates P/S figures to remain inflated for the long-term. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Dave (of which 1 makes us a bit uncomfortable!) you should know about.

If these risks are making you reconsider your opinion on Dave, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.