Dave Inc. (NASDAQ:DAVE) is a “neobank” that recently went public via a special purpose acquisition company (SPAC) merger on Jan. 5. DAVE stock subsequently took a tumble but it might now be reaching the point where it is affordable.
The fintech company received about $389 million in cash on its balance sheet at the closing of the deal. The point is that Dave might be able to fund future growth in its neobank activities as a result of the fintech financing it received.
Where Things Stand With Dave Inc.
So far the company has not produced a balance sheet or a full income statement for 2021. However, from page F-42 of its latest prospectus, we know that Dave lost $27.4 million on $111.9 million in revenue during the first nine months of 2021.
Moreover, the slide deck from June 7, 2021, when the merger was first announced, forecasts that it will make $377 million in revenue in 2022.
Now Dave now has about 323.549 million shares outstanding before warrants (which may not be in the money). So its market capitalization at $4.63 per share on Feb. 24 is $1.5 billion.
Not a Bad Valuation but Profitability Is Key
As a result, its valuation is not that bad at four times revenue for 2022, assuming its projections come to pass. However, whether the company will be profitable is another story.
Dave makes most of its revenue from essentially offering a line of credit for checking account customers of its neobank. It only allows between $100 and $200 per customer in order to bridge them between paychecks. It charges between $1.99 and $5.99 per loan and usually expects the funds to be paid back within two weeks. But it will make sure that the customer has money in their account to make the payment before automatically deducting this.
Once we get their full financials for the year we can see how many people try to skip out on the repayments. I suspect that the provision for losses may not be that bad. And if that is the case it’s possible that the dramatic rise in revenue could lead to significant profits going forward.
Moreover, the company’s move into banking will allow it to produce significant interchange fees. Right now that is not that big a percentage of revenue could become much higher.
DAVE Stock Has Potential
The stock has tumbled from just below $10 prior to the reverse merger in early January to just $4.63 as of Feb. 24. It’s possible that the stock could fall further. But I suspect that most investors now are waiting for the company to produce its fourth quarter and full 2021 financials.
That way they can see whether the company is on track to produce the huge growth in revenue that the company projects in its slide deck.
For example, the company projects $223 million in gross profits in 2022 and $329 million by the end of 2023. If that comes to pass that will likely significantly boost the stock price from here.
Assuming it makes a 20% net income profit on $529 million in revenue by 2023, its net income could be over $100 million ($105.8). So at 20 times profits its valuation could be worth $2.1 billion.
That represents a potential 41% gain over its represents $1.5 billion (pre-warrant) market cap today. That also implies that the stock is worth 41% more than $4.63, or $6.53 per share.
Where This Leaves DAVE Stock
If this takes two years, the annual return on investment (ROI) on DAVE stock will be 18.7% each of the next two years. That is not that bad a return for most investors, especially if there is a major correction during that period.
Therefore, long-term investors will look for a chance to buy cheaply into DAVE stock.
They will look for a good entry point over the next month until Dave Inc releases its 2021 earnings.
On the date of publication, Mark Hake directly held a long position in VeChain crypto but not in any other of the securities mentioned in this article, either directly or indirectly. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
Mark Hake writes about personal finance on mrhake.medium.com and Newsbreak.com and runs the Total Yield Value Guide which you can review here.