In the current session, Endava Inc. DAVA is trading at $128.46, after a 0.11% gain. Over the past month, the stock increased by 3.51%, and in the past year, by 51.28%. With performance like this, long-term shareholders are optimistic but others are more likely to look into the price-to-earnings ratio to see if the stock might be overvalued.

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Assuming that all other factors are held constant, this could present itself as an opportunity for shareholders trying to capitalize on the higher share price. The stock is currently under from its 52 week high by 25.49%.

The P/E ratio measures the current share price to the company's EPS. It is used by long-term investors to analyze the company's current performance against its past earnings, historical data and aggregate market data for the industry or the indices, such as S&P 500. A higher P/E indicates that investors expect the company to perform better in the future, and the stock is probably overvalued, but not necessarily. It also shows that investors are willing to pay a higher share price currently, because they expect the company to perform better in the upcoming quarters. This leads investors to also remain optimistic about rising dividends in the future.

Most often, an industry will prevail in a particular phase of a business cycle, than other industries.

Compared to the aggregate P/E ratio of 39.46 in the IT Services industry, Endava Inc. has a higher P/E ratio of 94.7. Shareholders might be inclined to think that Endava Inc. might perform better than its industry group. It's also possible that the stock is overvalued.

There are many limitations to P/E ratio. It is sometimes difficult to determine the nature of the earnings makeup of a company. Shareholders might not get what they're looking for, from trailing earnings.