IT consultants Globant(NYSE: GLOB) and Endava(NYSE: DAVA) help their clients adopt modern technologies to grow revenue and operate more efficiently. Despite major drops in their share prices as part of the recent market downturn, both have produced market-crushing returns since they went public. Let's dig deeper to see why these potential long-term multibaggers are worth close consideration.
Tailwinds of digital transformation are benefiting IT consulting companies
Information technology is always evolving, and it's difficult for businesses to keep up with all the emerging trends and innovations. In many cases, businesses seeking to stay competitive in their ever-changing markets partner with IT consulting companies to adopt modern processes, tools, and technologies.
Image source: Getty Images.
The demand for IT consulting services has grown dramatically in recent years, as businesses in every industry pursue digital transformation. According to Statista, global spending on digital transformation technologies and services is estimated at a staggering $1.8 trillion in 2022, and it's projected to reach $2.8 trillion in 2025. Capturing even a tiny slice of that opportunity could be extremely lucrative for Globant and Endava.
Globant: Growing steadily with methodical execution
Globant, founded in Argentina in 2003, has flourished as a prominent consulting services company that now serves a stellar list of clients such as Alphabet, American Express, Coca-Cola, Electronic Arts, and many more.
Globant's methodical execution powers its success. The company has streamlined its services with its "Studio" model, wherein each Studio is a group of its employees with deep expertise in related sets of technologies and trends such as cybersecurity, blockchain, and cloud computing. Recently the company augmented its core Studio model with Reinvention studios that aim to develop industry-specific digital solutions.
Customers are seeing the value in Globant's nifty model, and they're entrusting the company with more work. Since going public in 2014, Globant has grown its larger accounts -- the ones spending over $1 million dollars per year -- almost fivefold from 46 to 206 at the end of the first quarter of 2022. It is no surprise that from 2014 through 2021, Globant has increased its sales at an impressive compound annual growth rate (CAGR) of 31%. In the recently reported first quarter of 2022, the company grew its revenue to $401 million, up by 49% year over year; it expects full-year 2022 revenue to grow by over 36% relative to the past year, higher than its long-term CAGR. With its efficient execution, Globant has also been profitable, and improved its earnings per share (EPS) from $0.53 in the first quarter of 2021 to $0.86 in the first quarter of 2022.
All four co-founders of Globant are still actively engaged in the company, and one of the four, Martín Migoya, is the CEO. A discount of about 45% on its shares from their all-time high in November 2021 is a great opportunity for investors to consider a small stake in this promising company.
GLOB PE Ratio data by YCharts
Endava: Growing steadily with methodical execution
After working as a business and technology consultant for a number of years, John Cotterell founded the predecessor of Endava in 2000, and is still in charge as the CEO. The company established its roots in the United Kingdom and Europe, and has now begun to spread its wings to the other parts of the world.
In a highly competitive landscape of consulting and professional services, Endava created a different operating model. The company built its workforce strategically in a few central European countries, where IT talent was untapped and available relatively cheaper. This strategy also naturally evolved Endava's "nearshore" outsourcing model, which focuses on building its offices and hiring workers from locations that are geographically closer to its clients. Staying in the same or nearby time zones allows Endava's employees to overlap work hours with their clients, and enables timely interactions. Being from closer geographies also means Endava's workers have a greater familiarity with the social, cultural, and business environments of its clients. Ultimate outcomes are higher productivity and happier client relationships.
Those happy clients have been rewarding Endava with bigger contracts. The company has steadily grown its larger accounts -- paying over 1 million British pounds -- from 34 in fiscal 2017 (which ended on June 30, 2017) to 118 in the recently reported quarter that concluded on March 31, 2022. That customer adoption has nicely translated to the company's long-term revenue growth. Endava's revenue has increased by an impressive 29% CAGR from 2017, when it went public, through 2021. The company is building on that momentum and expects to close its fiscal 2022 with a year-over-year increase of 46% in revenue, reaching 652.0 million British pounds (about $824 million). Like Globant, Endava is profitable, thanks to its fiscally responsible and operationally efficient execution.
With its shares down about 40% from their all-time high in December 2021, now may be a great time for investors to take a position in this winner.
DAVA PE Ratio data by YCharts
Diversified client portfolios enable high upside while limiting downside
Globant and Endava serve clients of all sizes that operate in a variety of industries and are trying to adopt different technologies to solve varying problems. This highly diversified portfolio of clients and sources of revenue creates an excellent financial foundation for well-run IT consulting companies such as these two. Globant and Endava also get to capture the upside of their clients' businesses and grow with them. Even when you factor in the recent downturn, these companies' strong performance has led to serious share-price gains. Globant has produced returns of over 1,500% (compared to the S&P 500's 133%) since 2014, and Endava over 342% (versus the S&P 500's 51%) since 2017.
All investors are looking for investments that offer rewards far greater than their risks. Globant and Endava may offer just that.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. American Express is an advertising partner of The Ascent, a Motley Fool company.
Kaustubh Deshmukh (KD) has positions in Alphabet (A shares), Alphabet (C shares), Electronic Arts, Endava, and Globant. The Motley Fool has positions in and recommends Alphabet (A shares), Alphabet (C shares), Endava, and Globant. The Motley Fool recommends Electronic Arts. The Motley Fool has a disclosure policy.
