Endava Earnings Miss Drags Down Share Price as Backtests Signal Heightened Risk

Introduction: A Challenging Earnings Report Amid a Stable IT Services Sector

Endava, the UK-based technology services provider, has reported its Q4 2025 earnings, delivering a mixed performance against the broader backdrop of a relatively resilient IT Services sector. The report, released on September 6, 2025, revealed a notable shortfall in earnings, prompting immediate market concern. Investors have historically viewed the IT Services sector as one with muted post-earnings volatility, yet Endava’s performance stands out as a cautionary tale, particularly in light of historical backtest data that underscores a consistent negative reaction to earnings misses.

Earnings Overview & Context

Endava’s Q4 2025 results paint a modest but troubling picture. The company reported total revenue of , a solid figure but not indicative of strong growth. However, the headline loss came in the form of negative comprehensive income of , driven primarily by an —a rare and concerning deviation.

Key performance metrics for the quarter include:- EPS (Earnings Per Share): - Operating Income: - Net Interest Expense: - Net Income Attributable to Common Shareholders:

Despite achieving modest net income, the comprehensive loss severely dampens the perceived strength of the report. The operating margin of and the pressure from interest expenses and general administrative costs highlight structural challenges that may weigh on future performance.

Backtest Analyses

Stock-Specific Backtest

A detailed backtest of Endava’s historical performance reveals a troubling pattern: when the company misses earnings, its stock typically underperforms for a sustained period. Specifically, after earnings misses, the stock has a over the subsequent 3, 10, and 30 days, with returns deteriorating over time. At 30 days post-miss, the average return is a , indicating poor recovery and persistent bearish sentiment. These results suggest a high risk of continued downward pressure following a miss, with limited likelihood of short-term rebounds.

Industry-Wide Backtest

In contrast, the broader IT Services sector shows a much more stable reaction to earnings misses. Backtests of the industry reveal that such misses typically produce minimal to no impact on stock prices, with a maximum return of only observed within a 52-day window. This suggests that the market either has high confidence in the sector’s fundamentals or that earnings misses are not strongly correlated with performance in this space.

While this indicates that IT Services companies may be somewhat insulated from post-earnings volatility, Endava’s poor backtest performance sets it apart from its peers, reinforcing the idea that internal management and execution are critical variables.

Driver Analysis & Implications

Endava’s Q4 performance is being driven by a confluence of factors, both internal and macroeconomic. The company’s , combined with a , paints a picture of high overheads and financial leverage that are constraining margins. These pressures are exacerbated by the , which could stem from non-cash items like foreign exchange or investment-related adjustments, further eroding investor confidence.

On the macro front, the broader IT services sector has remained relatively insulated from typical post-earnings volatility, likely due to strong demand for cloud and digital transformation services. However, for a company like Endava, where execution and earnings surprises are closely watched, the combination of high costs and a poor earnings track record could become a self-fulfilling prophecy.

Investment Strategies & Recommendations

For short-term investors, the current outlook is bearish. Given the historical pattern of prolonged underperformance following earnings misses, the recommendation is to either avoid the stock post-earnings or consider shorting it with a stop-loss in place. The poor win rate and deep drawdowns make this a high-risk proposition for aggressive traders.

Long-term investors should remain cautious. While the IT Services sector is broadly stable, Endava’s performance is lagging and appears to be hindered by operational inefficiencies. Investors may want to wait for a clear turnaround signal, such as improved margins, stronger revenue growth, or better-than-expected guidance in the next report.

Conclusion & Outlook

Endava’s Q4 2025 earnings report underscores the company’s operational challenges and highlights a clear disconnect from broader sector performance. The earnings shortfall has triggered a bearish trend, supported by historical backtests that show prolonged underperformance. Investors should closely monitor the company’s next guidance, due in the upcoming report, for signs of stabilization or strategic shifts.

The next catalyst will likely come from Q1 2026 earnings and guidance, where the company will need to demonstrate meaningful progress in cost control, profitability, and earnings visibility. Until then, the risk-reward profile for Endava appears skewed to the downside.