Is DAVE Stock the next Big Short Squeeze?

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Shares of David (NASDAQ:DAVID) stock, a fintech company known for its overdraft apps, rose sharply on speculation of a short squeeze. It had five times its normal trading volume on July 26, and shares rose around 40% overnight.

West Hollywood-based Dave launched a financial planning app in 2017. This went public earlier this year through a Special Purpose Acquisition Company (SPAC) merger. Its early rise was notably supported by investor Mark Cuban. The shares opened above $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 an “off-exchange short fund ratio” of 54%. This involves professional investors short-selling the stock in so-called “dark pools” outside of listed exchanges.

Dave in numbers

Dave is best known for credit creator, which reports timely payments to credit companies to establish credit scores, and ExtraCash, which offers instant loans. It also has an application portal called Side Hustle.

During the March quarter, Dave lost nearly $35 million, 10 cents per share, on revenues of $42.5 million. Based on those results, its market capitalization had fallen to $234 million on July 27. The company is then due to release its figures on August 11, with analysts expecting a loss of 7 cents per share on revenue from $49.4 million.

Will Meade, a former hedge fund manager with over 300,000 Twitter followers, tweeted that the stock “feels like the next $RDBX.” red box (NASDAQ:RDBX), which rents DVDs through kiosks, suffered a severe squeeze in June, with shares hitting a high of more than $15.

What happens next

Even if Dave goes through a crisis, it will probably be a short-lived event. Redbox is now trading at around $6.

Investors interested in the future of Dave apps are advised to wait out the pressure before buying. The company’s business is growing with strong gross margins, but operating losses, including bad advances, can get worse.

As of the date of publication, Dana Blankenhorn does not hold any positions at the companies mentioned in this article. The opinions expressed in this article are those of the author, subject to InvestorPlace.com Publication guidelines.

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