Endava Earnings 2025: Misses Market Expectations, Triggering Strong Sell-Off Concerns

Introduction: A Mixed Earnings Picture for Endava in a Stable IT Services Sector

As the 2025 fiscal year closes, Endava (NASDAQ: DAVA) has released its latest earnings report, drawing the attention of investors seeking clarity on its performance in a generally stable IT Services industry. While IT Services stocks as a category have shown minimal reaction to earnings misses historically, Endava’s stock has demonstrated a more pronounced sensitivity to such outcomes. The recent market backdrop had positioned Endava as a key watchlist name, with expectations of solid execution against a backdrop of macroeconomic uncertainty.

Earnings Overview & Context

Endava reported mixed results for the 2025 fiscal year, with total revenue reaching $546.3 million. Despite this, the company’s operating income came in at $27.4 million, and net income attributable to common shareholders was $18.98 million, translating to diluted earnings per share of $0.32. These figures are in line with the company’s cost management strategy, as total operating expenses were reported at $109.15 million.

However, the broader market has historically reacted negatively to Endava’s earnings misses, and the upcoming analysis highlights the potential for sustained investor disappointment.

Backtest Analyses

Stock Backtest

The backtest data reveals a consistently poor performance for DAVA following earnings misses. Across 3-day, 10-day, and 30-day timeframes, the win rate remains at a low 37.5%, with negative returns observed in all measured periods. The most pronounced downside is seen over 30 days, with returns dipping as low as -11.43%. These results underscore the strong negative market reaction to Endava’s earnings performance, indicating a potential lack of investor confidence in its execution or guidance.

Industry Backtest

In contrast to Endava’s stock-specific reaction, the IT Services industry as a whole shows a muted response to earnings misses. The backtest results indicate no significant impact on sector returns, with a maximum return of only 3.81% recorded 52 days post-event. These findings suggest that, while individual stocks like DAVA may face pronounced sell-offs, the sector as a whole remains relatively insulated from earnings performance.

Driver Analysis & Implications

Endava’s financials reflect a disciplined approach to cost management, with operating expenses at $109.15 million and a manageable net interest expense of -$8.5 million. However, the company’s reported net income of $18.98 million and diluted EPS of $0.32 may not be enough to satisfy market expectations, particularly in a sector where growth and margin expansion are increasingly valued.

On a macro level, the IT Services industry continues to benefit from digital transformation and cloud adoption, but Endava’s execution may be lagging relative to peers. Internal drivers such as marketing and general admin expenses, which totaled $117.64 million, point to a potentially high cost base that could affect long-term margin sustainability.

Investment Strategies & Recommendations

In the short term, investors should remain cautious, especially following earnings misses. Historical performance indicates a strong sell-off reaction, which could exacerbate position risk for those holding or adding to positions post-reporting. A conservative approach—such as reducing exposure or hedging against further downside—may be prudent.

For long-term investors, the IT Services industry remains on a growth trajectory, and Endava’s strategic focus on digital transformation could offer upside potential. However, this would require a reassessment of the company’s execution and cost structure, as well as an eye toward management’s forward guidance and capital allocation strategy.

Conclusion & Outlook

Endava’s 2025 fiscal year results paint a mixed picture of strong revenue but subdued earnings, with a market reaction that suggests ongoing investor skepticism. While the IT Services sector as a whole appears resilient to earnings volatility, Endava’s historical performance following misses is a red flag for risk-sensitive investors.

The next key catalyst will be management’s guidance for the upcoming year, which will provide critical insight into the company’s strategic direction and operational performance. Until then, investors are advised to remain cautious, particularly in the immediate aftermath of earnings releases.