Endava’s Disappointing Earnings Signal Persistent Pressure Amid Weak Backtest Trends

Introduction

As the 2025 fiscal year draws to a close, (DAVA) delivered another mixed earnings report, reflecting ongoing challenges in translating top-line growth into meaningful profitability. With the IT services sector showing muted reactions to earnings misses, investors are closely watching how DAVA’s stock performs in the wake of its latest report. The pre-report market backdrop was cautiously optimistic, but the outcome suggests the company is struggling to meet expectations, especially against a backdrop of rising operating costs and limited visibility on future margins.

Earnings Overview & Context

, a solid figure in the context of its market. However, the path to profitability remained challenging. , . On a per-share basis, .

, highlighting the pressures of its cost structure. , , selling, and general administrative expenses. Interest expense also weighed on the bottom line, .

Despite a relatively strong revenue outcome, the earnings miss was pronounced, especially given the company’s cost base. This sets the stage for a closer look at how the stock historically responds to such scenarios.

Backtest Analyses

Stock Backtest

The results for Endava reveal a concerning trend for investors. Following earnings misses, , , . More alarmingly, the negative returns tend to worsen over time, . This pattern suggests that the market reacts with sustained bearish sentiment, and early drawdowns rarely recover, compounding the risk for investors who enter after a negative surprise.

Industry Backtest

In contrast, the broader industry has shown a much more neutral response to earnings misses. , indicating that the market does not react strongly to earnings shortfalls in this sector. This muted response could imply that IT Services earnings misses are not seen as significant red flags—perhaps due to sectoral confidence in long-term growth or strong balance sheets across the industry.

Driver Analysis & Implications

The earnings report highlights Endava’s persistent cost management challenges, particularly in its SG&A and interest expenses. These internal pressures are compounded by the market’s historically bearish reaction to earnings shortfalls, which suggests a lack of confidence in the company’s ability to stabilize and grow profits consistently.

From a macro perspective, while the sector is generally well-positioned, Endava appears to be underperforming, both in earnings execution and in market sentiment. This divergence between sector trends and the company’s performance could be a sign of structural inefficiencies or execution risks that have yet to be fully addressed.

Investment Strategies & Recommendations

For short-term investors, the combination of weak historical performance after earnings misses and the lack of a clear recovery pattern presents a cautionary signal. Strategies may include avoiding new long positions or considering short-term shorting opportunities, particularly in the 10–30 day window following a miss.

Long-term investors, however, should look beyond the quarterly report and assess the company’s strategic direction, including its ability to reduce costs, improve margins, and align its guidance with realistic revenue expectations. Given the sector’s resilience and Endava’s continued presence in high-growth tech domains, a more patient approach could still be justified, though with close monitoring of near-term sentiment and cost control efforts.

Conclusion & Outlook

Endava’s latest earnings report highlights a company struggling to convert revenue growth into sustainable profitability. While the IT Services sector has shown resilience to earnings misses, DAVA’s poor historical performance following similar events signals a need for caution. Investors should watch the next catalyst closely: the company’s guidance for the upcoming fiscal year, which could provide further insight into whether Endava is on a path to improved earnings execution or further deterioration.