Growth investing methods often look for companies that are not only increasing in size, but doing so with faster speed and better financial condition. One organized method for locating these stocks is described in Louis Navellier's "The Little Book That Makes You Rich," which lists eight basic rules meant to find excellent growth stocks. These rules center on favorable earnings adjustments and surprises, rising sales, growing margins, good cash flow, earnings increases, positive earnings speed, and a high return on equity. A recent filter using these ideas has identified an interesting possibility in the digital banking sector: Dave Inc (NASDAQ:DAVE).
A Good Fit for the "Little Book" Rules
Dave Inc., a digital banking service aimed at consumers with limited options, seems to fit well with many of Navellier's important growth measures. The firm's latest financial results display very strong speed across important numbers.
- Favorable Earnings Adjustments & Surprises: Experts have greatly increased their forecasts, with the average EPS estimate for the coming quarter moved up by 48.5% in the past three months. This satisfies the filter's need for at least a 4% adjustment and points to rising belief in Dave's short-term future. Also, the company has a history of beating forecasts, reporting favorable earnings surprises in three of the past four quarters, with an average exceedance of 96.1%.
- Very Strong Sales and Earnings Increases: The heart of any growth narrative is revenue expansion, and Dave provides it. Revenue increased 53.8% year-over-year, with an even stronger 63.0% increase in the latest quarter versus the same time last year. The profit increase is remarkable: EPS jumped 1,161.5% over the last year and an enormous 14,733.3% quarter-over-quarter.
- Growing Profitability and Good Cash Flow: Growth is most useful when it becomes more profitable. Dave's operating margin has grown greatly, rising by over 504% in the last year. The company is also producing notable cash, with free cash flow increase climbing 4,294.4% year-over-year, signaling a sound, expandable business model.
- High Return on Equity: A main gauge of how well a company creates profits from shareholder equity, Dave's Return on Equity (ROE) is at a solid 50.4%, much higher than the filter's 10% limit. This implies management is using capital well to produce value.
Fundamental Condition and Valuation Setting
Outside the specific filter rules, a wider view of Dave's fundamentals shows a company in good condition but holding a growth premium. Based on ChartMill's full fundamental analysis report, Dave receives a total rating of 7 out of 10.
The company does very well in financial condition, getting a full 10, with outstanding solvency and liquidity measures that are much better than industry competitors. Its growth rating is a high 9, mirroring the strong speed in both revenue and earnings. Profitability is getting better, with margins scoring well in the industry, though the rating of 6 shows this is a part still changing from the company's prior phases.
Valuation, with a score of 4, is where the growth narrative meets investor examination. The stock sells at a premium using standard price-to-earnings measures compared to its consumer finance peers. Yet, this is partly explained by its very strong growth rates, as shown by a low PEG ratio, which includes earnings growth forecasts. Investors are clearly compensating for future possibility.
Is DAVE Suitable for Growth Investors?
For investors using a method like Navellier's, Dave Inc. offers a clear example of a company reaching several high-growth indicators. The mix of expert positive outlook, remarkable sales and earnings speed, quickly improving margins, and excellent cash flow production meets many of the targets looked for by organized growth filters. The high ROE further highlights efficient capital use.
It is very important to recall that such strong growth paths can be unstable, and the present valuation requires that this growth persists to meet high forecasts. The company's own forecasts and future earnings announcements will be vital in deciding if it can maintain this speed.
This review of Dave Inc. came from a filter copying the "Little Book" method. For investors wanting to find other firms that currently meet these active growth rules, you can review the live filtering outcomes here: View the "Little Book" Screening Results.
Disclaimer: This article is for information only and is not financial guidance, a suggestion, or a proposal to buy or sell any securities. The information shown is based on supplied data and should not be the only foundation for an investment choice. Investors should perform their own complete investigation and think about their personal financial situation before making any investment.
