Endava Shares Plunge as Growth Strategy Falters

The British IT services provider Endava finds itself navigating turbulent waters as its growth narrative unravels. A disappointing earnings report and a pessimistic outlook for the coming fiscal year have triggered a sustained sell-off, with the stock price failing to stabilize. The company, once a market darling, now faces serious questions about its future trajectory.

Analyst Sentiment Sours Following Weak Guidance

The financial community has responded decisively to the company’s bleak projections. Multiple prominent institutions have slashed their price targets. Morgan Stanley adjusted its target to $11, maintaining a “Hold” recommendation. In a telling move, even the typically bullish analysts at Needham reduced their target to $12, despite retaining a “Strong Buy” rating. This indicates that even the most optimistic market watchers have been forced to drastically temper their expectations.

The current analyst consensus reflects deep-seated caution. Of the eleven analysts covering the stock, seven now rate it as a hold. Only three see any compelling buy opportunity, while one has issued an outright sell recommendation—a clear signal of the prevailing skepticism on Wall Street.

Financial Performance and Forecasts Paint a Grim Picture

Endava’s latest quarterly results offered little comfort to its investors. For the full fiscal year 2025, the company posted a modest revenue increase of 4.3%, reaching £772.3 million. However, this slight annual gain masks a more troubling quarterly performance; revenue in the fourth quarter actually contracted by 3.9%.

Should investors sell immediately? Or is it worth buying Endava?

The guidance for fiscal 2026 has further rattled the market. Management anticipates revenue will decline to a range between £750 million and £765 million. The profitability outlook is equally concerning. The adjusted pre-tax profit margin, which recently stood at 11%, is projected to shrink to just 8%. Company leadership attributes this pressure to volatile market conditions and a newfound caution among clients, who are actively scaling back their IT expenditures.

Heavy AI Investments Strain Profitability

A significant factor impacting Endava’s bottom line is its aggressive investment in artificial intelligence. The firm reports that more than half of its workforce is now engaged with AI technologies. While the strategic goal is to secure larger contracts and drive business transformation for clients, these substantial investments are currently weighing heavily on profitability.

The company acknowledges that its AI initiatives are creating a tangible headwind, depressing margins by an estimated 3% each quarter. Although the long-term strategy of positioning itself as an AI leader appears sound, its success in the current economic climate is uncertain. The persistent downward trend of the share price suggests that investors remain deeply unconvinced that these bets will pay off in the near future.

The critical question now is whether Endava can execute a successful turnaround or if the company is destined for a prolonged period of stagnation. Based on the current financial data and market reaction, the prospects for a rapid recovery appear dim.