Endava: Tech Star or Value Trap? The Contrarian’s Playbook

The tech sector is in a holding pattern. Rates are rising, AI hype is cooling, and IT services giants like Cognizant and Accenture are grappling with margin pressures. But one name is blazing a contrarian path: Endava (DAVA). Is this $3B software innovator a diamond in the rough—or a bubble about to pop? Let’s dig in.

1. Earnings Guidance: A Growth Machine or Overpromising?
Endava’s Q3 2025 earnings showed 18% year-over-year revenue growth, driven by its strategic focus on digital transformation—a sector growing at 22% annually. Key drivers?
- Cloud enablement and AI/ML integration: 38% of revenue comes from financial services clients needing regulatory tech and digital banking platforms.
- Healthcare and life sciences: A 15% revenue surge here, fueled by telehealth and data analytics.
- APAC expansion: 27% revenue growth in Australia/Singapore via fintech and e-commerce wins.

But the kicker is recurring revenue: 68% of sales now come from subscription models, offering predictability. Meanwhile, Endava’s 98% delivery execution rate—thanks to its “remote-first” workforce and “Endava University” upskilling program—kept projects on track.

2. Valuation: Is 35x P/E a Steal or a Stretch?
Endava trades at 35x forward P/E, a 78% premium to peers like TCS (18x) and 22x EV/EBITDA, versus an industry average of 16-18x. Critics argue this overvalues a company dependent on a few sectors. But here’s why the premium might stick:

- Margin resilience: Endava’s 22% net profit margin dwarfs peers’ 12-15%. Its focus on high-margin digital projects (vs. legacy IT) is a moat.
- EDP’s $45M incremental revenue: Clients using its low-code platform cut time-to-market by 40%, driving repeat business.

3. Competitive Pressures: Can Endava Stay Ahead?
The IT services sector is crowded. Cognizant’s recent AI push with NVIDIA and its 10.65 EV/EBITDA (vs. Endava’s 22x) highlight cost-conscious competition. But Endava’s specialization matters:

• Client retention: A 22% revenue boost from existing clients vs. Cognizant’s flat retention.
• Proprietary tech: The EDP isn’t just a tool—it’s a revenue engine, with cross-selling opportunities.

4. Remote Delivery Model: Risk or Strength?
Endava’s “remote-first” model—relying on distributed teams in 21 countries—has kept costs low (10% gross margin improvement). But skeptics worry about execution risks. Here’s why it holds up:

• Endava University: Training engineers in blockchain and generative AI ensures skills stay cutting-edge.
• 98% delivery execution rate: Higher than peers, proving scalability.

The Contrarian Call: Buy the Dip—or Bail?
The risks are real. If macro headwinds stall digital spending, Endava’s growth could slow. Plus, 68% of revenue comes from five sectors—a concentration risk.

But the valuation math screams opportunity:
- Endava’s 10% target price increase (per analysts) assumes 20%+ growth continues.
- Its recurring revenue model insulates it from one-off project volatility.

Final Verdict:
Endava is the Tesla of IT services—priced for perfection but delivering it. At 35x P/E, it’s pricey, but this isn’t your dad’s IT firm. If you believe in digital transformation’s staying power, buy on dips below $90 (current: $92). The sector’s volatility is noise; Endava’s moats are real.

Action Alert: Endava’s premium is justified. This is a hold for growth investors—and a buy for contrarians willing to look past macro fears.

—Jim’s Bottom Line: DAVA is a high-octane bet on digital’s future. Strap in.