Endava PLC (DAVA, Financial) recently experienced a day's decline of 3.76%, yet it boasts a notable three-month gain of 33.42%. With an Earnings Per Share (EPS) of $1.59, investors are pondering whether the stock is significantly undervalued. This article embarks on a valuation analysis to uncover the true worth of Endava PLC, guiding readers through a comprehensive assessment of its market value.
Company Introduction
Endava PLC is at the forefront of the IT services industry, specializing in bespoke software development to aid clients in their digital transformation journeys. Founded in 2006 in the U.K., Endava PLC has established a strong presence, particularly in the U.K. and Europe, with a focus on the payments, financial services, technology, media, and telecom sectors. With a current stock price of $65.24 and a market cap of $3.80 billion, we compare it against the GF Value, which estimates the stock's fair value, to gauge its true valuation.
Summarize GF Value
The GF Value is an exclusive metric to evaluate a stock's intrinsic value, factoring in historical trading multiples, a GuruFocus adjustment for past performance and growth, and future business performance predictions. According to the GF Value, Endava PLC (DAVA, Financial) appears to be significantly undervalued. The GF Value Line suggests the fair value where the stock should trade, and when the price falls significantly below this line, it indicates a potential for higher future returns.
Given its current price of $65.24 per share and a market cap of $3.80 billion, all signs point to Endava PLC being substantially undervalued. This valuation suggests that the long-term return of its stock could outpace its business growth, presenting a potentially lucrative opportunity for investors.
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Financial Strength
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Endava PLC's cash-to-debt ratio of 2.44 ranks it above half of its peers in the Software industry. This strong balance sheet is reflected in a financial strength rating of 9 out of 10 from GuruFocus.
Profitability and Growth
Consistent profitability is a hallmark of a lower-risk investment. Endava PLC has maintained profitability for 8 out of the past 10 years. With a revenue of $969.80 million and an Earnings Per Share (EPS) of $1.59, its operating margin of 13.02% ranks well within the Software industry. This strong profitability is acknowledged with a rating of 8 out of 10.
Growth is a pivotal valuation factor, as it is closely tied to long-term stock performance. Endava PLC's impressive average annual revenue growth rate of 30.2% surpasses 84.19% of its industry counterparts. Moreover, its 3-year average EBITDA growth rate of 50.4% ranks better than 89.42% of the companies in the Software industry.
ROIC vs WACC
Comparing a company's Return on Invested Capital (ROIC) with its Weighted Average Cost of Capital (WACC) can reveal its value creation efficiency. Endava PLC's ROIC of 18.19% over the past 12 months is significantly higher than its WACC of 11.72%, indicating effective capital allocation and shareholder value creation.
Conclusion
Overall, Endava PLC (DAVA, Financial) stock presents as significantly undervalued. The company's financial health is robust, its profitability is strong, and it boasts an impressive growth ranking in the Software industry. For a more detailed exploration of Endava PLC's financials, interested investors can review its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
