Ron Baron (Trades, Portfolio), leader of Baron Capital Management, disclosed this week his firm expanded its position in Endava PLC (DAVA, Financial) by 31.42% on June 30.
The guru’s New York-based firm implements a bottom-up research process to find small and mid-size growth companies with open-ended opportunities and significant competitive advantages to invest in for the long term while they are trading at attractive prices. Baron, who manages the Baron Asset Fund, the Baron Growth Fund and Baron Partners Fund, is also known for ignoring short-term market fluctuations, especially when he believes the fundamental reasons for purchasing the stock have not changed.
According to GuruFocus Real-Time Picks, a Premium feature, the firm picked up 486,725 more shares of Endava, impacting the equity portfolio by 0.12%. The stock traded for an average price of $48.30 on the day of the transaction.
Baron’s firm now holds 2.04 million shares of the British software company, representing 0.48% of the equity portfolio. GuruFocus estimates the firm has gained 40.6% on the investment since establishing it in the third quarter of 2018.
The company, which provides digital transformation consulting, agile software development services and various automation solutions, has a $2.88 billion market cap; its shares were trading around $52.32 on Friday with a price-earnings ratio of 109.57, a price-book ratio of 11.52 and a price-sales ratio of 6.92.
The Peter Lynch chart shows the stock is trading above its fair vaule, suggesting it is overpriced.
Endava reported its third-quarter results on May 21, posting adjusted earnings of 0.23 British pounds (29 cents) per share on 92.2 million pounds ($116.45 million) in revenue, an increase of 26.2% from the prior-year quarter.
While it is difficult to determine the full impact the Covid-19 pandemic will have on the company’s operations, Endava’s management is anticipating fourth-quarter revenue will be between 86 million pounds and 87 million pounds. Earnings are expected to range from 0.15 pounds to 0.16 pounds per share.
For the full year, it is forecasting revenue in the range of 346.5 million pounds to 347.5 million pounds. Earnings are projected to be between 0.92 pounds and 0.93 pounds per share.
GuruFocus rated Endava’s financial strength 7 out of 10. While the company has poor interest coverage, the Altman Z-Score of 12.73 indicates it is not at risk of going bankrupt.
The company’s profitability did not fare as well, scoring a 4 out of 10 rating. While Endava’s margins and returns outperform over half of its competitors, the low Piotroski F-Score of 3 implies operations are in poor shape.
With a 3.7% stake, Baron’s firm is Endava’s largest guru shareholder. Jim Simons (Trades, Portfolio)’ Renaissance Technologies, the Wasatch International Growth (Trades, Portfolio) Fund and Caxton Associates (Trades, Portfolio) also have positions in the stock.
Portfolio composition and performance
Baron’s $20.41 billion equity portfolio, which is composed of 338 stocks as of the end of the first quarter, is most heavily invested in the technology (21.21%), consumer cyclical (18.56%) and financial services (17.59%) sectors.
Other software companies the firm owns as of the three months ended March 31 include Gartner Inc. (IT, Financial) Ansys Inc. (ANSS, Financial), Guidewire Software Inc. (GWRE, Financial), SS&C Technologies Holdings Inc. (SSNC, Financial), GDS Holdings Ltd. (GDS, Financial), Wix.com Ltd. (WIX, Financial), Ceridian HCM Holding Inc. (CDAY, Financial), VeriSign Inc. (VRSN, Financial) and Clarivate PLC (CCC, Financial).
According to GuruFocus, the Baron Partners Fund returned 44.99% in 2019, outperforming the S&P 500’s return of 31.48%.
Disclosure: No positions.
Read more here:
- 3 US Small-Cap Stocks to Consider for Market Recovery
- Chuck Royce’s Firm Adds Bristow Group to Portfolio, Boots Pzena Investment Management in June​
- Taylor Morrison Reports Record June Sales as Low Mortgage Rates Encourage Buying
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
