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My fingers have burned since I bought it FTSE 250 technology sharing Softcat (LSE:SCT) in January. It has fallen sharply in recent months, due to concerns about how Artificial Intelligence (AI) models will disrupt the software industry. The company was already lagging behind as tough conditions affected its wider tech usage, affecting revenue growth.
Over 12 months, Softcat’s price has fallen by 24%. But I always hope it will be the best buy in the long run. In fact, I hope the recovery has begun – it is up 8% today (March 18) after releasing excellent half-year numbers.
Is it time for value investors to take a closer look at the stock?
Predictions have been removed
Softcat offers a variety of solutions for businesses including cybersecurity, networking, cloud computing and AI. In this way, it can provide end-to-end integrated IT services, making it a one-stop shop that strengthens customer relationships.
Wednesday showed the strength of this model even during a strong market downturn. How? It raised its full-year profit forecasts after announcing a “a special first half performance.”
Total invoiced revenue jumped 33% in the six months to January, to £2bn. Underlying operating profit grew by 27% as a result to £93.8m. Both came in ahead of schedule.
Softcat said the result shows “strong, broad-based performance and contribution from large solution projects,” combined with “pulling forward to other customer orders due to memory shortage.”
As a result, the company now expects “high single digit growth in underlying operating profit” throughout the year.
The development of AI
Most interestingly, Softcat seems to be benefiting from the AI boom rather than suffering from it. Graham Charlton commented today that AI is actually “it opens up significant opportunities to transform the business model.”
He added that “these trends play directly into our strengths, AI is increasing customer demand across storage and computing, across networks and devices, as well as creating the need for greater security and governance..”
Oakland’s acquisition of the tech giant last April greatly expanded its expertise and opportunities in this area. With its exceptional cash generation, Softcat has the opportunity to expand its position here through further acquisitions and investment in employees (the figure jumped 10.5% in the first quarter).
Are Softcat shares worth a look?
Even after today’s recovery, Softcat’s share price still offers excellent value. The price-to-earnings (P/E) ratio remains at 16.6, well below the 10-year average of 27–28.
The share still faces risk given the uncertain economic climate and signs of rising inflation. It is also important to remember that we are still in the early stages of AI. Who will benefit and who will be the victims of this new border is still largely unknown.
But Softcat’s strong start and strength elsewhere suggest it’s still a top stock to consider. And especially with today’s drop price.
