Dave Inc.'s (NASDAQ:DAVE) Price Is Right But Growth Is Lacking After Shares Rocket 25%

Dave Inc. (NASDAQ:DAVE) shares have continued their recent momentum with a 25% gain in the last month alone. The last 30 days were the cherry on top of the stock's 676% gain in the last year, which is nothing short of spectacular.

Although its price has surged higher, Dave may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 1.9x, since almost half of all companies in the Software industry in the United States have P/S ratios greater than 4.6x and even P/S higher than 12x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/S.

View our latest analysis for Dave

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

With revenue growth that's superior to most other companies of late, Dave has been doing relatively well. Perhaps the market is expecting future revenue performance to dive, which has kept the P/S suppressed. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Dave will help you uncover what's on the horizon.

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

Dave's P/S ratio would be typical for a company that's expected to deliver very poor growth or even falling revenue, and importantly, perform much worse than the industry.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The strong recent performance means it was also able to grow revenue by 110% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 15% per annum as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 19% each year growth forecast for the broader industry.

In light of this, it's understandable that Dave's P/S sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Dave's P/S?

Shares in Dave have risen appreciably however, its P/S is still subdued. We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Dave maintains its low P/S on the weakness of its forecast growth being lower than the wider industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. The company will need a change of fortune to justify the P/S rising higher in the future.

Before you take the next step, you should know about the 2 warning signs for Dave that we have uncovered.

If you're unsure about the strength of Dave's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.