The current stock market feels like a scary place, and the economic outlook seems as uncertain as ever. However, taking control of emotions and investing in high-quality companies at today's discounted prices can be transformational to long-term investors.
Two such businesses that investors may want to take a closer look at are Globant (GLOB 0.53%) and Endava (DAVA 2.88%). Both are IT consulting companies that help their clients adopt modern technologies to grow revenue and operate more efficiently. Despite over 45% drops in their share prices as part of the recent market downturn, both Globant and Endava have produced market-crushing returns since they went public: Globant produced returns of over 1,500% (compare to the S&P 500's 133%) since 2014 and Endava over 342% (versus the S&P 500's 51%) since 2017.
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, their preferred way to handle it is to partner with specialists -- IT consulting companies -- in adopting modern processes, tools, and technologies to stay competitive in their markets.
Image source: Getty Images.
The demand for IT consulting services has grown dramatically in recent years, as digital transformation has been at the front and center of every business in every industry. According to Statista, global spending on digital transformation technologies and services is estimated at a staggering $1.8 trillion in 2022 and is projected to reach $2.8 trillion in 2025. Capturing even a tiny slice of that opportunity would be very 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 is at the heart of 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.
From 2014 (when the company went public) through 2021, Globant grew 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, and it expects the 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, Martin Migoya, is the CEO. The current discount on its shares is a great opportunity for investors to consider a small stake in this promising company.
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 was very shrewd in building a differentiated operating model. The company built its workforce strategically in a few central European countries, where IT talent was untapped and available at a relatively cheaper cost. 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.
Endava has grown its revenue by an impressive 29% of CAGR since going public in 2017 through 2021. The company is building on that momentum and expects to close its fiscal 2022 -- ending on June 30, 2022 -- with a year-over-year increase of 46% in revenue reaching 652.0 million (British) pounds. Like Globant, Endava is profitable, thanks to its fiscally responsible and operationally efficient execution.
With its shares taking a beating along with the broader market, now may be a great time for investors to take a position in this winner.
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.
All investors are looking for investments with asymmetric upside. Globant and Endava may just offer that.
