Dave Inc.'s (NASDAQ:DAVE) Share Price Is Still Matching Investor Opinion Despite 30% Slump

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The Dave Inc. (NASDAQ:DAVE) share price has softened a substantial 30% over the previous 30 days, handing back much of the gains the stock has made lately. Regardless, last month's decline is barely a blip on the stock's price chart as it has gained a monstrous 523% in the last year.

Although its price has dipped substantially, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 18x, you may still consider Dave as a stock to avoid entirely with its 47.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Dave certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Dave

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

Is There Enough Growth For Dave?

In order to justify its P/E ratio, Dave would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 80% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 77% during the coming year according to the seven analysts following the company. With the market only predicted to deliver 14%, the company is positioned for a stronger earnings result.

With this information, we can see why Dave is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Dave's P/E

Even after such a strong price drop, Dave's P/E still exceeds the rest of the market significantly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Dave's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You always need to take note of risks, for example - Dave has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than Dave. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.