Endava (DAVA 1.65%) beat quarterly earnings expectations, but the underlying numbers from the British tech consultancy provided little reason for investors to get excited.
Shares of Endava traded down 21% as of 10 a.m. ET due to guidance that fell short of expectations.
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Headwinds outweigh results
Endava specializes in helping large corporations modernize their IT systems. The company's results have underwhelmed, causing the stock to lose more than 80% of its value since the beginning of 2024.
The latest results show little sign of a turnaround. Endava beat Wall Street's earnings-per-share estimate by 0.01 British pounds, but revenue was down 4% year over year and headcount off by 5%. Endava also set full-year fiscal 2026 targets for revenue and earnings below expectations.
CEO John Cotterell remains upbeat, noting that Endava ended the period with its highest ever quarterly order book and attributing the pressure to companies being gun shy about starting new projects in a challenging macro environment.
"Despite the increase in the order book, the short-term operating backdrop remains volatile and many clients continue to recalibrate the timing of spending, and therefore our outlook remains cautious," Cotterell said.
Is Endava a buy?
If Cotterell is correct, now is a great time to buy into Endava. The company was once a promising growth story with global connections and a strong foothold in key markets including financial services companies.
The fear among investors is that business will never recover due to the rise of artificial intelligence tools that allow corporate clients to do much of that IT modernization work in house. Endava is attempting to position itself as the go-to for non-tech companies that need help with AI, but that field is rapidly growing crowded.
Investors should be at least somewhat encouraged by Cotterell's comments on a growing order book. But until Endava shows it has turned the corner, this stock is best limited to a small part of a diversified portfolio.
