For investors looking for a systematic way to find high-growth stocks, the method described in Louis Navellier’s The Little Book That Makes You Rich offers a strong framework. The plan is based on eight basic rules meant to find companies showing better earnings momentum, faster sales, improving profitability, and good financial condition. By searching for these specific traits, investors try to locate stocks set for major growth before the wider market completely sees their possibility.
Dave Inc. (NASDAQ:DAVE) has recently appeared from a search using this plan. The digital banking service, which offers financial products like its ExtraCash overdraft service and Dave Checking account, seems to display several of the strong growth traits Navellier’s method tries to find.
Matching the "Little Book" Rules
A detailed review of Dave’s recent financial results shows how it fits key parts of the growth search plan.
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Positive Earnings Revisions & Surprises: The plan values analyst opinion and a company’s record of consistently doing better than forecasts. Dave shows force here, with the average EPS estimate for the next quarter moved higher by over 54% in the last three months. Also, the company has topped analyst EPS estimates in three of the last four quarters, with an average surprise of over 96%. These higher revisions and positive surprises point to business force that may not yet be completely seen in the stock price.
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Strong Sales and Earnings Growth: Central to any growth plan is top-line increase. Dave’s revenue growth is solid, with a 53.8% rise year-over-year and an even stronger 63% growth in the latest quarter compared to the same quarter last year. More notably, the bottom-line growth is remarkable. Dave’s earnings per share (EPS) jumped by 1,161.5% over the past year, and the quarterly EPS growth is at a notable 14,733%. This shows not only revenue growth, but a successful move of sales into profits.
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Improving Profitability and Good Cash Flow: Navellier’s method searches for companies becoming more efficient. Dave’s operating margin has grown notably, rising by over 504% in the past year, showing the company is scaling with profit. Also, the company is creating notable cash, with free cash flow growth rising by over 4,294% year-over-year. Good and increasing cash flow supplies the means for more investment, debt paydown, or strategic moves without needing outside money.
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High Return on Equity (ROE): This measure shows how well a company creates profits from shareholder equity. Dave’s ROE of 50.37% is high, putting it at the top of its industry group. A high ROE is a sign of a well-run company that is giving good returns on invested money.
Basic Condition and Price Setting
Beyond the specific search rules, a wider basic review of Dave shows a company in good financial condition. According to ChartMill’s detailed basic report, Dave gets an overall score of 7 out of 10. The company’s condition score is a full 10, helped by a good balance sheet with little debt, high liquidity ratios, and a high Altman-Z score showing low bankruptcy risk. Profit measures are getting better quickly, though the score notes the company’s past of negative earnings in earlier years.
On price setting, the view is mixed. The stock’s Price-to-Earnings (P/E) ratio seems high compared to its industry, but its Price-to-Forward Earnings ratio is more moderate and similar to the market. Importantly, when growth is included through the PEG ratio, the price looks more appealing, suggesting the market may not be completely valuing the company’s strong earnings path.
A Choice for Growth-Oriented Investors
For investors using a plan like the one in The Little Book That Makes You Rich, Dave Inc. presents a strong example. It meets several needs for earnings momentum, faster sales, margin growth, and high returns on equity, all important signs for a growth stock. The company’s change to strong profitability and cash creation, along with a very good balance sheet, gives a base for this growth.
It is important to see that such strong growth rates can be hard to keep, and the stock’s recent results are viewed next to a history of earlier years of losses. As with any growth investment, these parts need close thought and continued watching.
Interested in reviewing other stocks that pass this strict growth search? You can locate and adjust the "Little Book" search model for your own study here.
Disclaimer: This article is for information only and does not make financial advice, a suggestion to buy or sell any security, or a support of any investment plan. Investors should do their own study and think about their personal financial situation and risk comfort before making any investment choices.
