An ex-Neil Woodford FTSE 250 stock has exploded to a new all-time high. Would I buy, sell or hold?

This former Neil Woodford FTSE 250 (INDEXFTSE: MCX) stock is up over 50% this year. What do I think is the best move now?

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Back in May last year, I noted that Neil Woodford had sold promising FTSE 250 growth stock Softcat (LSE: SCT) from his Equity Income portfolio. While Woodford most likely made a decent profit from the technology stock, in hindsight it looks as though the portfolio manager sold it way too early, as today, SCT shares have just hit an all-time high of 900p. According to my calculations, that’s around 30%-40% higher than the price that Woodford sold out of the stock for last year.

So, what’s caused Softcat shares to spike up to a new all-time high today? Let’s take a closer look at the stock.

Strong growth 

The reason that Softcat shares are up today (+6% at the time of writing) is that the group has released its half-year report for the six months to 31 January and the numbers look good.

Indeed, highlights for the six-month period included a 21% rise in revenue to £434m, a 41% surge in diluted earnings per share to 13.8p, and a hugely impressive 36% rise in the interim dividend to 4.5p per share. The group also added 620 new customers.

CEO Graham Watt commented: “It’s been another period of very strong performance for the Company, characterised by additional market share gains,” and also added that the group expects “a full-year outcome marginally ahead of previous expectations.”

Looking at these results, it’s clear that Softcat has plenty of momentum at the moment. Are the shares worth buying now?

Valuation

Softcat is a stock that I have historically been very bullish on as the company has an excellent growth track record: it has now registered 54 consecutive quarters of unbroken year-on-year income and profit growth, which is an amazing achievement. I actually named the stock as one of my top technology picks for 2017 and since then, it has risen 220%.

The last time I covered SCT, in November, I was seeing a lot of value on the table. The stock had taken a hit in October’s equity market sell-off and its P/E ratio had fallen to 22, which I saw as a bargain. I said at the time that I was “tempted to begin building a position at current levels” and I’m extremely frustrated that I didn’t pull the trigger on this one.

Fast forward to today, and the shares are up nearly 40% since my November article and they currently trade on a forward P/E of around 29. At that valuation, there’s clearly not as much margin for error with the shares.

So right now, I see the shares as more of a ‘hold’. I’m still bullish on the medium-to-long-term investment case for Softcat however, with the stock up over 50% this year, I think it’s probably fully-valued at the moment. In my view, this is a great one to buy on the dips.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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