Endava PLC (DAVA, Financial) recently experienced a daily gain of 3.88% and a 3-month gain of -8.58%. With an Earnings Per Share (EPS) of 2.03, the question arises: is the stock significantly undervalued? This article aims to provide a detailed valuation analysis of Endava PLC. Let's delve into the financials and key metrics to uncover the intrinsic value of Endava PLC.
Company Introduction
Endava PLC is a renowned provider of technology solutions. The company offers an array of services including Agile Transformation, Digital Evolution, Automation, Test Automation, Engineering, Cloud, Architecture, Software Engineering, and more. These services cater to various industries like Finance, Retail and Consumer Goods, Telecommunication, Media, Technology, Insurance, and Healthcare. Endava PLC's current stock price is $52.98, with a market cap of $3 billion. However, the GF Value, an estimation of fair value, stands at $144.15, hinting at a significant undervaluation of the stock.
Understanding GF Value
The GF Value is a unique measure that represents the current intrinsic value of a stock. The calculation of GF Value is based on three factors: historical multiples at which the stock has traded, a GuruFocus adjustment factor based on the company's past performance and growth, and future estimates of business performance. The GF Value Line on our summary page provides an overview of the fair value at which the stock should ideally be traded.
When the stock price is significantly above the GF Value Line, it is considered overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return is likely to be higher. Currently, Endava PLC's stock is believed to be significantly undervalued, implying that the long-term return of its stock is likely to be much higher than its business growth.
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Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, it's crucial to review a company's financial strength before deciding to purchase shares. Key indicators of financial strength include the cash-to-debt ratio and interest coverage. Endava PLC has a cash-to-debt ratio of 3.11, ranking better than 52.42% of 2753 companies in the Software industry. The overall financial strength of Endava PLC is 9 out of 10, indicating strong financial health.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is less risky. Endava PLC has been profitable 7 over the past 10 years. Over the past twelve months, the company had a revenue of $941.30 million and Earnings Per Share (EPS) of $2.03. Its operating margin is 14.77%, ranking better than 82.01% of 2751 companies in the Software industry. Overall, the profitability of Endava PLC is ranked 8 out of 10, indicating strong profitability.
Growth is a crucial factor in the valuation of a company. A faster-growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Endava PLC is 28%, ranking better than 83.37% of 2412 companies in the Software industry. The 3-year average EBITDA growth rate is 47.6%, ranking better than 88.35% of 2009 companies in the Software industry.
ROIC vs WACC
Another method of determining the profitability of a company is to compare its return on invested capital (ROIC) to the weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. When the ROIC is higher than the WACC, it implies the company is creating value for shareholders. For the past 12 months, Endava PLC's return on invested capital is 23.37, and its cost of capital is 11.23.
Conclusion
Overall, Endava PLC (DAVA, Financial) stock appears to be significantly undervalued. The company's financial condition is strong and its profitability is robust. Its growth ranks better than 88.35% of 2009 companies in the Software industry. To learn more about Endava PLC stock, you can check out its 30-Year Financials here.
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