Hook - Thesis (short)
Endava has been punished for margin slippage and a handful of ugly headlines. The share price now trades around $6.99 as of 01/23/2026, down sharply from last year's trading ranges. That sell-off overstates the company's structural strengths: durable demand for digital engineering, a diversified client base concentrated in payments, financial services and TMT, and a workforce model that can be rebalanced to restore operating leverage.
Thesis in one line: the market's current price reflects fear over short-term margin weakness; if Endava can deliver a disciplined cost reset and margin stabilization over the next 2-4 quarters, the stock should materially outperform from here. This is a tactical long - buy into weakness, use a disciplined stop, and scale out on evidence of margin recovery.
Business primer - what Endava actually does and why anyone should care
Endava is a next-generation IT services company that builds custom software and drives digital transformation for enterprise customers. Its client mix skews toward payments and financial services, technology, media and telecom - sectors that still need to modernize legacy infrastructure and launch digital products. That positioning should keep revenue opportunities intact even when macro sentiment is mixed; companies continue to prioritize projects that cut cost or open new digital revenue streams.
Why the market should care: software engineering and digital transformation services command higher margins than commodity IT outsourcing when delivered at scale and with strong client relationships. Endava historically benefited from operational gearing: steady revenue growth + improving utilization could expand operating margins. The recent sell-off suggests investors lost confidence in that trajectory; the question for traders is whether that loss of confidence is justified or overdone.
Where the market is today (numbers you can use)
- Last trade: $6.99 (most recent print 6.9916), up roughly +2.2% on the session and trading in a $6.81 - $6.99 intraday band as of 01/23/2026.
- Today's volume: 139,948 shares; yesterday's volume was ~280,173, suggesting episodic interest on headline days.
- 12-month price history shows a very wide range: peaks in the low-mid $30s and the recent low just above $6.11 in the past year; the move to the current sub-$7 level represents a very large derating from historical trading levels.
Note: detailed line-item financials were not included in the materials I have; however, public coverage through the past year flagged earnings misses and downward revenue trends late in 2025 that pressured the story, and there are several public notices of investor litigation in late 2024. Those items explain the market's reluctance to give the benefit of the doubt to management. Still, the company's core business remains cash-positive and project-driven, which creates an obvious path to margin improvement if utilization and pricing stabilize.
Why margins are the stock's downfall - and why they should recover
The sell-off in the stock has been driven primarily by margin compression rather than existential demand failure. Headlines in November and September 2025 called out earnings misses, revenue slowdowns and generally ‘trends moving in the wrong direction’ - all classic inputs that force investors to revalue a service business downward when operating leverage looks unreliable.
Operationally, this sort of margin pressure typically comes from three sources: lower utilization across the billable workforce, project mix shifting toward lower-margin work, and higher SG&A or investment spending in downturns (sales and recruitment costs). The fix is also well-known: freeze discretionary hiring, focus on utilization and delivery efficiency, and push for pricing resets on renewals and new work.
Endava's advantage is that it is a delivery-led services firm - the same levers that drove margin expansion in prior cycles are available again. The market will reward demonstrable margin stabilization (even a modest 200-300 bps recovery) because the current price already discounts a scenario where margins remain depressed for many quarters.
Valuation frame - how to think about price from here
The dataset does not include a current market capitalization or consensus earnings metrics, nor peer multiples in the materials I have. That said, valuation logic is straightforward: the stock is trading around $7, a level that is materially below where Endava traded for most of the prior 12 months when sentiment was neutral to positive. The current price implies extremely low near-term profitability and little credit for any margin recovery.
Because peer data is not in the file I'm using, frame the valuation qualitatively: if Endava can deliver margin stabilization and modest organic revenue growth, the shares should re-rate back toward the multi-digit price levels that reflected higher margin expectations last year. Conversely, sustained margin erosion would justify the compressed valuation the market is currently assigning.
Catalysts - what will move the stock
- 01/2026 - Next quarterly results and management commentary on margin drivers and utilization. Concrete margin guidance or a cost-reduction plan will be the immediate trigger for a re-rate.
- Client wins / large contract renewals announced publicly - proof that revenue mix and pricing are holding up.
- Clear evidence of productivity or delivery efficiency improvements - better utilization or lower subcontractor spend will show up in sequential margin expansion.
- Resolution of litigation or clarity around any regulatory exposures - removes an overhang on the multiple.
- Any positive analyst revisions after a quarter that beats on margins or revises guidance upward.
Trade idea - actionable plan
Trade structure: tactical long with defined entry band, stop-loss and two take-profit targets. This is a position for traders comfortable with event risk and some headline noise; time horizon 3-9 months.
Entry: scale into 50-100% of intended position between $6.40 - $7.20.
Initial Stop: $5.60 (roughly 20% below entry midpoint). Tighten stops as you scale in or if volume and price action confirm strength.
Target 1 (trim 40%): $10.00 - a ~45% gain from $6.90, reachable on margin stabilization and improved guidance.
Target 2 (sell remaining): $15.00 - a ~115% gain, contingent on sustained margin recovery and a re-rating as investor confidence returns.
Position sizing: keep this to a single-digit percent of portfolio value given high headline risk; adjust down if concentration or risk appetite is low.
Risk management: if the 1st quarterly update (next earnings) shows further margin deterioration and negative guidance, exit and/or tighten stop to avoid deeper losses.
Rationale: the entry band sits where implied downside is less attractive (limited) because much bad news is already priced in; the upside is asymmetric if Endava demonstrates a credible path back to 200-300 basis points of operating margin recovery and stabilizing revenues.
Risks (balanced section) - what can go wrong
- Prolonged margin weakness: if utilization does not recover or the company continues to mix into lower-margin work, margins may remain depressed and the multiple will not re-rate. This is the single largest operational risk.
- Revenue deterioration: headlines in 09/04/2025 and 11/2025 flagged downward revenue trends. A deeper-than-expected revenue decline would compound margin pressure and force more severe cost action (and potential one-offs).
- Litigation/regulatory overhang: there are public notices of investor lawsuits from late 2024. Legal costs or settlements can be material and keep the stock depressed until resolved.
- Client concentration and large-account risk: if a small number of large clients reduce spend or insource work, revenue and margins could be hit faster than the company can cut costs.
- Macro / budgeting environment: continued weakness in enterprise IT budgets or prioritization away from transformation projects could slow sales and lengthen sales cycles.
- Execution risk on cost actions: layoffs or hiring freezes can reduce capacity and impact long-term revenue if implemented indiscriminately, potentially leaving the company smaller with no margin benefit.
Counterargument to my thesis
It is reasonable to argue that the market is right: the nature of Endava's client work may have shifted structurally toward lower-margin engagements, or competition and pricing pressure have permanently compressed margins. If that's true, the stock should not be bought as a margin-recovery trade - management would need to demonstrate a durable change in business mix or pursue M&A to rebuild scale and margins. That outcome would validate a permanently lower multiple and justify a cautious stance.
What would change my mind
I would flip to a negative view if management reports another quarter of sequential margin deterioration with conservative or negative guidance on utilization and revenue, or if new disclosure shows materially larger legal liabilities than previously signaled. Conversely, if the company prints a quarter with expanding margins (even modestly) and gives concrete, achievable guidance for a multi-quarter recovery, I would increase conviction and move targets higher while raising position size.
Conclusion - clear stance
Endava is a high-risk, high-reward tactical long at current levels. The market has punished the name hard because margins deteriorated and news flow amplified investor concern. I think much of that risk is priced in around $7. The trade hinges on margins: if management can show a realistic recovery plan and sequential improvement, the shares should recover well into double-digit levels that reflect even modest margin normalization. Use a scaled entry, a disciplined stop at $5.60, and layered take-profits at $10 and $15. Keep position size small relative to portfolio, because headline noise and litigation overhang could keep the stock volatile for some time.
If the next quarter confirms further deterioration rather than recovery, cut losses and look to reassess at lower prices or after clarity emerges.
Note: I relied on recent market prints and public headlines. The next company update will be decisive. Trade with stops and position-sizing appropriate to your risk tolerance.