Endava plc: A Mispriced Growth Story in Tech Services

The tech services sector has long been a battlefield of valuation extremes. Some companies are priced for perfection, while others languish in obscurity despite robust fundamentals. Endava plc (NYSE:DAVA) falls squarely into the latter category—a firm with a stock price that appears to be trading in a parallel universe to its earnings trajectory. At just over $15 per share as of June 2025, Endava's valuation is at odds with its £1.27 billion revenue forecast by 2030 and a projected EPS rise to £2.97 over the same period. This disconnect presents a compelling opportunity for investors willing to look past short-term volatility and focus on the company's strategic geographic diversification and client base expansion, which are underpinning a growth story that the market has yet to fully recognize.

The Undervaluation Case: Metrics That Demand Attention

Endava's current P/E ratio of 37.65 may seem elevated, but it's a fraction of its 2019 peak of 124 and meaningfully lower than its 2023 level of 53.3. More compelling is its Price-to-Sales (P/S) ratio of 0.92, which is less than half the industry median of 2.49 for software infrastructure firms. This suggests the market is assigning little value to Endava's top-line growth, which has expanded from £84.1 million in 2015 to £794.7 million in 2023—a 9-fold increase over eight years. By contrast, competitor Anaplan (PLAN), which trades at a negative P/E ratio, offers no such growth visibility.

The Growth Engine: Why the Bulls Are Right

Endava's agile software development model and focus on cloud computing, AI, and digital transformation have positioned it as a critical partner for industries like finance, healthcare, and retail. Its geographic diversification—with operations in 25 countries and a strategy to expand into emerging markets—buffers it from regional economic headwinds. Meanwhile, its client retention rate of over 90% underscores the stickiness of its services.

The company's earnings trajectory is another pillar of its case. Despite margin pressures—projected to dip to 22.83% by 2030—the sheer scale of revenue growth is driving EPS to new highs. A 53% increase in net income to £94.2 million in 2023, compared to £13.5 million in 2015, signals a maturing business model that's scaling efficiently.

Catalysts for a Turnaround

The market's skepticism may be fading as large contract signings begin to materialize. Endava's pipeline includes multi-year deals with financial institutions and healthcare providers, which could provide the revenue visibility needed to stabilize its stock price. Additionally, its ESG-focused solutions—such as AI-driven sustainability tools—are resonating with corporations under pressure to meet climate goals, opening up new revenue streams.

Navigating the Near-Term Headwinds

No investment is without risk. Endava's declining margins—a byproduct of reinvesting in talent and infrastructure—could deter short-term traders. A single-day price anomaly on April 28, 2025, when its stock briefly dipped to $0.00, also highlights liquidity risks, though this appears to be a data error rather than a fundamental issue.

Moreover, the tech sector's macroeconomic sensitivity remains a concern. If global growth slows further, clients may delay digital transformation projects, impacting Endava's top line. However, its subscription-based revenue model (accounting for 40% of sales) offers some insulation against cyclical downturns.

Why Buy Now?

At $15 per share, Endava is trading at a 246% discount to its 2025 forecast of $88.63—a target based on its revenue growth profile and peer valuations. The company's $1.039 billion enterprise value, paired with its £220.58 million projected equity by 2030, suggests a fair value well above current levels.

Investors should take a long-term view, focusing on Endava's strategic advantages:
1. Client diversification: No single industry accounts for more than 25% of revenue.
2. Talent advantage: A global workforce of 10,000+ engineers, many in low-cost regions, supports margin resilience.
3. Innovation pipeline: AI and generative tools are being integrated into its service offerings, creating defensible barriers to competition.

Final Call: A Buy with a 5-Year Horizon

Endava's stock is a prime example of a valuation anomaly—a company delivering consistent growth but misunderstood by the market. While near-term volatility remains, the 2030 forecast of £1.27 billion in revenue and £132 million in net income justify a buy rating. Investors should consider accumulating shares at current levels, with a target price of $50–$80 over the next two years as growth expectations reset.

The tech sector is littered with overhyped darlings and forgotten gems. Endava is the latter—undervalued, underappreciated, and primed for a revaluation. This is a stock to buy when others are still asleep.