We recently published a list of 8 High Growth UK Stocks to Invest In. In this article, we are going to take a look at where Endava (NYSE:DAVA) stands against other high growth UK stocks to invest in.
According to a KPMG report, the United Kingdom’s GDP growth is projected to slow in the second half of 2024 but is expected to rise slightly to 1.2% in 2025. This growth will likely be driven by a less restrictive monetary policy and ongoing improvements in real wages, which could boost consumption and business investment. However, in the longer term, GDP growth may be limited to around 1.1% per year due to historically slow productivity growth.
UK inflation is forecasted to rise to 3% by early 2025, after dropping below 2%, this increase is attributed to the ongoing economic recovery and the impact of interest rate cuts on the economy. The Bank of England is expected to take a cautious approach to easing monetary policy, with the base rate expected to reach 3.5% by the end of 2025. This indicates that the central bank will be careful not to overstimulate the economy, in order to avoid overheating and inflationary pressures.
UK consumers have been saving a larger portion of their income, which may continue to limit spending growth. While some of this increase in savings could reverse as interest rates fall, a significant portion is likely to remain, driven by long-term demographic trends and heightened caution in response to a more volatile economic environment. In terms of investment, the forecast predicts that overall investment growth will accelerate as further interest rate cuts reduce the burden on business investment.
UK Equities: Attractive Investment Opportunity
Nannette Hechler-Fayd’herbe, Chief Information Officer in Europe, the Middle East, and Africa at Lombard Odier, a Swiss private bank specializing in wealth and asset management, in an interview on Bloomberg, shared her perspectives on the current investment landscape, emphasizing the importance of spreading investment risk more broadly across multi-asset portfolios. Hechler-Fayd’herbe expresses her affinity for UK equities, citing their attractive valuations and sector composition.
She notes that UK equities are trading at forward price-to-earnings ratios similar to those of emerging markets, making them an appealing investment opportunity. The UK equity index, in particular, offers a favorable exposure to the energy sector, which is poised to benefit from a better-than-expected global economy. Additionally, in the event of geopolitical escalation, the energy sector is likely to benefit from higher prices, making it an attractive hedge.
Hechler-Fayd’herbe highlights the sector composition of the UK equity market as a key factor in its appeal. The market’s exposure to the energy sector, combined with its relatively lower volatility and higher dividend yields compared to European equities, makes it an attractive investment opportunity. She also notes that the UK equity market’s dividend yield is more attractive compared to European equities, providing a more stable source of income for investors.
Hechler-Fayd’herbe believes that the Bank of England’s interest rate cuts would potentially lead to a rally in UK equities. Overall, Hechler-Fayd’herbe’s comments suggest that UK equities offer an attractive combination of value, income, and sector composition, making them a compelling investment opportunity in the current market environment.
Our Methodology
To compile our list of the 8 high-growth UK stocks to invest in, we used the Finviz and Yahoo stock screeners to find the 60 largest companies in the UK. We then narrowed our choices to 8 stocks with the highest 5-year revenue growth. We also included their hedge fund sentiment, which was taken from our database of 912 elite hedge funds as of Q2 of 2024. The list is sorted in ascending order of their of their revenue growth.
Why do we care about what hedge funds do? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 275% since May 2014, beating its benchmark by 150 percentage points (see more details here).
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Endava (NYSE:DAVA)
5-Year Revenue CAGR: 20.80%
No of Hedge Funds: 16
Endava (NYSE:DAVA) is a technology services firm that specializes in IT services, including custom application development. The company also offers IT consulting, software development, and automation services to clients in finance, healthcare, and telecommunications.
In June, Endava (NYSE:DAVA) announced an expansion of its partnership with Google Cloud in the Asia Pacific (APAC) region. This collaboration aims to deliver and implement Google Cloud’s services, such as Generative AI, Cloud Migration, and Application Modernisation. By offering customers access to highly skilled software and data engineers, along with top-notch customer service, the partnership will provide tailored products and services across Google Cloud’s product suite. This expansion marks a significant step in Endava’s continued growth in Australia, New Zealand, and Southeast Asia, reinforcing its commitment to technical excellence in the region.
Endava (NYSE:DAVA) has a strong emphasis on custom application development, a high-growth sector in the IT services industry. With a consensus Buy rating from industry analysts, the stock has a target price of $37.30, which represents a 38.87% upside potential from its current level.
Overall, DAVA ranks 5th on our list of high growth UK stocks to invest in. While we acknowledge the potential of DAVA as an investment, our conviction lies in the belief that AI stocks hold greater promise for delivering higher returns and doing so within a shorter timeframe. If you are looking for an AI stock that is more promising than DAVA but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
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Disclosure: None. This article is originally published at Insider Monkey.