Shares of Dave (NASDAQ:DAVE) stock, a financial technology firm known for overdraft apps, rose sharply on speculation over a short squeeze. It had five times its normal trading volume on July 26, and shares were up about 40% overnight.
Dave, based in West Hollywood, launched in 2017 with a financial planning app. It came public early this year through a special purpose acquisition company (SPAC) merger. Its early rise was notably backed by investor Mark Cuban. Shares opened at over $10 in January but have since lost more than 90% of their value. Even with the big gain, DAVE opened at 82.5 cents per share today.
Fintel’s short interest tracker shows less than 4% of DAVE shares held short on listed exchanges. But there is also a 54% “off-exchange short fund ratio.” This involves professional investors shorting the stock in so-called “dark pools” outside of listed exchanges.
Dave by the Numbers
Dave is best known for Credit Builder, which reports timely payments to credit companies to build credit scores, and ExtraCash, which offers instant loans. It also has a job-application portal called Side Hustle.
During the March quarter, Dave lost nearly $35 million, 10 cents per share, on revenue of $42.5 million. Based on those results, its market capitalization had fallen to $234 million on July 27. The company is next due to report numbers on Aug. 11, with analysts expecting a loss of 7 cents per share on revenue of $49.4 million.
Will Meade, a former hedge fund manager with more than 300,000 Twitter followers, tweeted that the action “feels like the next $RDBX.” Redbox (NASDAQ:RDBX), which rents DVDs through kiosks, underwent an intense short squeeze in June, with shares rising to a high of over $15.
What Happens Next
Even if Dave is going through a squeeze, it will likely be a short-duration event. Redbox is now trading at about $6.
Investors interested in the future of Dave apps are being advised to wait until the squeeze is over before buying. The company’s business is growing with solid gross profits, but operating losses, including unrecoverable advances, may be worsening.
On the date of publication, Dana Blankenhorn held no positions in any companies mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.