Why I’m not missing out on this underrated growth stock at 1,615p

My
investment
strategy
to
date
has
admittedly
been
relatively
light
on
growth
stocks.
Despite
countless
hours
of
analysis
on
various
companies,
I
have
always
leant
more
towards
value
stocks.

However,
there’s
one
IT
services
company
hitting
its
growth
targets
that
has
really
caught
my
eye.

Softcat
(LSE:
SCT)
is
a
market
leader
valued
at
a
touch
over
£3bn.
The
UK-based
company
is
a
leading
provider
of
IT
infrastructure
to
corporate
and
public
sectors,
offering
solutions
including
cyber
security,
digital
workspace
services
and
cloud
computing.

According
to
Statista,
the
global
infrastructure
as
a
service
market
is
set
to
grow
from
US$154.7bn
in
2023
to
$359.8b
by
2028.
This
large
and
growing
addressable
market,
while
facing
challenges
of
market
saturation
and
security
issues,
has
me
excited.

I
think
the
opportunity
in
this
growth
stock
is
just
too
good
to
pass
me
by.
The
company’s
share
price
is
down
around
30%
from
its
all-time
high
but
has
climbed
20%
higher
in
2024
at
the
time
of
writing.

A
strong
growth
profile

With
a
strong
industry
profile,
the
company’s
financial
statements
and
investor
reports
are
where
I
looked
next.

Softcat’s
half-year
results
last
month
only
confirmed
my
belief.
Despite
reporting
an
8.8%
dip
in
half-year
revenue,
largely
from
lagging
hardware
sales,
there
was
plenty
to
like
about
the
company.

Softcat
reported
growing
gross
and
operating
profits
alongside
a
healthy

balance
sheet.
In
fact,
the
company
is
debt-free,
with
£112.5m
cash
on
hand.
This
should
give
the
company
more
financial
and
operational
flexibility,
unconstrained
by
the
high
cash
burn
of
servicing
large
debts.

All
in
all,
the
interim
results
confirmed
what
I
thought
–
this
looks
like
a
cash
generative
and
growing
business.
Softcat
increased
its
headcount
by
14.6%
in
the
first
half
of
the
year
as
it
looks
to
build
capabilities
and
“scale
to
enable
long-term
market
share
gains
in
a
growing
sector”.
This
is
music
to
my
ears
as
a

long-term
investor.

There’s
also
the
artificial
intelligence
(AI)
angle
that
takes
my
fancy.
Softcat
has
noted
strong
demand
for
generative
AI
and
expects
this
to
provide
a
tailwind
for
its
own
business
going
forward.

While
shares
in

Nvidia
and
others
have
exploded
amidst
an
AI
scramble,
I
think
Softcat
could
quietly
benefit
as
an
adjacent
service
provider
in
the
space
over
the
medium
term.

Of
course,
I’m
not
naïve
that
my
imminent
Softcat
purchase
has
its
risks.
Hardware
sales
remain
under
pressure
and
IT
services
is
a
highly
competitive,
and
increasingly
crowded,
market.
There’s
the
ever-present
operational
and
public
relations
risks
arising
from
cyber
security
breaches
as
well.

The
company
has
a
price-to-earnings
(P/E)
ratio
of
around
28,
which
is
higher
than

Computacenter,
trading
around
16.
That
means
some
of
this
potential
growth
is
already
being
priced
into
its
current
valuation.

The
verdict

Softcat
ticks
all
my
boxes
as
a
growth
stock.
A
fast-growing
industry,
strong
market
position
and
healthy
balance
sheet
has
me
itching
to
buy.

Yes,
the
company
is
a
little
on
the
expensive
side.
Yes,
there
are
other
competitors
doing
well
in
the
space.
Yes,
there
are
risks
that
it
doesn’t
continue
to
achieve
its
growth
targets.

However,
I
think
at
1,615p
per
share,
with
the
significant
AI
tailwinds
looming,
Softcat
is
one
that
will
be
in
my
portfolio
in
no
time.