3 Reasons Why Growth Investors Shouldn’t Overlook Endava PLC Sponsored ADR (DAVA)

This story originally appeared on Zacks

Investors seek growth stocks to capitalize on above-average growth in financials that help these securities grab the market’s attention and produce exceptional returns. But finding a great growth stock is not easy at all.

– Zacks

By their very nature, these stocks carry above-average risk and volatility. Moreover, if a company’s growth story is over or nearing its end, betting on it could lead to significant loss.

However, it’s pretty easy to find cutting-edge growth stocks with the help of the Zacks Growth Style Score (part of the Zacks Style Scores system), which looks beyond the traditional growth attributes to analyze a company’s real growth prospects.

Endava PLC Sponsored ADR (DAVA) is on the list of such stocks currently recommended by our proprietary system. In addition to a favorable Growth Score, it carries a top Zacks Rank.

Research shows that stocks carrying the best growth features consistently beat the market. And for stocks that have a combination of a Growth Score of A or B and a Zacks Rank #1 (Strong Buy) or 2 (Buy), returns are even better.

Here are three of the most important factors that make the stock of this company a great growth pick right now.

Earnings Growth

Arguably nothing is more important than earnings growth, as surging profit levels is what most investors are after. For growth investors, double-digit earnings growth is highly preferable, as it is often perceived as an indication of strong prospects (and stock price gains) for the company under consideration.

While the historical EPS growth rate for Endava PLC Sponsored ADR is 5.3%, investors should actually focus on the projected growth. The company’s EPS is expected to grow 35.7% this year, crushing the industry average, which calls for EPS growth of 21.4%.

Cash Flow Growth

Cash is the lifeblood of any business, but higher-than-average cash flow growth is more beneficial and important for growth-oriented companies than for mature companies. That’s because, high cash accumulation enables these companies to undertake new projects without raising expensive outside funds.

Right now, year-over-year cash flow growth for Endava PLC Sponsored ADR is 84.1%, which is higher than many of its peers. In fact, the rate compares to the industry average of 11.5%.

While investors should actually consider the current cash flow growth, it’s worth taking a look at the historical rate too for putting the current reading into proper perspective. The company’s annualized cash flow growth rate has been 26.3% over the past 3-5 years versus the industry average of 18.4%.

Promising Earnings Estimate Revisions

Superiority of a stock in terms of the metrics outlined above can be further validated by looking at the trend in earnings estimate revisions. A positive trend is of course favorable here. Empirical research shows that there is a strong correlation between trends in earnings estimate revisions and near-term stock price movements.

The current-year earnings estimates for Endava PLC Sponsored ADR have been revising upward. The Zacks Consensus Estimate for the current year has surged 2.7% over the past month.

Bottom Line

Endava PLC Sponsored ADR has not only earned a Growth Score of A based on a number of factors, including the ones discussed above, but it also carries a Zacks Rank #1 because of the positive earnings estimate revisions.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

This combination positions Endava PLC Sponsored ADR well for outperformance, so growth investors may want to bet on it.

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