Investment Alert: Buy DAVA Under $48/share
Disclaimer: Investment Alerts have a medium to long-term time horizon. These do not constitute financial advice and you should contact a financial advisor before deciding whether it is appropriate for your individual circumstances.
Jimmy McMillan sprung to fame a decade ago as the founder of the “Rent is Too Damn High” party. The words that catapulted him to fame were:
“My name is Jimmy McMillan, and I’m here to tell you that rent is too damn high!
The rent in New York City is out of control. It’s gone up 50% in the last five years, and it’s only going to keep going up. The average rent for a one-bedroom apartment in Manhattan is now over $3,000 a month. That’s more than a mortgage payment!
This is not sustainable. People can’t afford to live in New York City anymore”
In the spirit of Jimmy McMillan, we’re going to talk about a stock today that is Too. Damn. Cheap. It’s called, Endava.
- Endava share price has taken a massive tumble over the past 18 months, but the company is now very cheap on a valuation basis.
- The company has reported 5 years of quarterly year-over-year revenue growth, highlighting positive fundamentals against the weak technical backdrop.
- The reward to risk now is compelling given the large potential upside.
Stunning Financials, Terrible Stock Chart
Endava first came to our attention when scouting for stocks that were undervalued. More on the valuation later. As we dove down the rabbit hole, the financials leapt off the page: 20 quarters straight of year-over-year revenue growth, and 19 of the last 20 quarters with positive operating income.
This is a company doing things right. And yet the stock chart has been truly abysmal.
It’s been nothing but down for a year and a half; pure torture for long-term shareholders. Yet, there are compelling reasons to buy:
- Strong customer base: Customers include some of the world’s largest and most respected companies, such as HSBC, Coca-Cola, and Pfizer. Endava’s customer relationships are long-term and sticky, with many customers renewing their contracts for multiple years.
- Proven management team: The management team is experienced and has a proven track record of success. The team is led by CEO John Kennedy, who has been with the company for over two decades.
- Excellent growth prospects: Endava is benefiting from the increasing demand for digital transformation services and expanding into new markets, including the United States and Asia.
Why Buy Endava?
On a valuation basis, Endava appears too cheap now to ignore. The consensus analysts’ price target is $71.72 per share while our own analysis suggests fair value sits at $73 per share, representing upside of 54% from current levels.
Endava is a company that has high quality earnings, high return on invested capital, enjoys a strong and cash-rich balance sheet relative to debt, and trading at a low P/E multiple with a compelling valuation.
We like it at these levels for a long-term play in spite of the risks of slower growth and heightened competitive pressures.