So we’re in the grip of the Covid-19 pandemic. And the FTSE 100 is down 20% in the 2020 stock market crash. But that doesn’t mean growth investing is dead. Far from it, in fact, as a look at IT infrastructure specialist Softcat (LSE: SCT) shows. The Softcat share price is up 18% so far in 2020, making it one of those rare stocks in positive territory this year.
The price did drop a bit when the Covid-19 lockdown started, but it quickly recovered. And the Softcat share price added 4% Wednesday morning on the back of a full-year trading update.
There weren’t many details. But I don’t think that’s such a bad thing these days when most news seems to be bad news. The key point was summed up by CEO Graeme Watt, who said: “Cash generation has been strong and as a consequence we intend to resume our normal dividend policy in addition to the reinstatement of the cancelled interim dividend.“
So Softcat is back to being a growth stock that also pays dividends, which to many is the perfect kind of investment. Yields aren’t high at the moment, with forecasts suggesting 1.1% to 1.3% for this year and next. But dividends at any level are always good, especially when supported by strong cash flow. And with the Softcat share price reflecting a relatively high valuation, yields will inevitably appear low.
Beating expectations
Softcat has “continued to trade satisfactorily during the final three months of the year and has delivered operating profit for the full year slightly ahead of the Board’s expectations.”
The 2020 stock market crash has turned a lot of investors away from growth stocks and towards more defensive companies. You know, those providing essential goods and services which should thrive whatever the economic conditions. But if growth investing is your chosen strategy, I really don’t see why the 2020 downturn should stop you. And if you’ve shied away from the Softcat share price, you’ve missed a nice gain.
After all, you’re not just investing for this year, are you? Well, some people do indeed invest for short-term profits from growth stocks. But I think that’s a very risky strategy at the best of times. And if you’re investing for where you think the Softcat share price is likely to be in five years, or in 10 years, the short term really doesn’t matter.
Softcat share price valuation
Forecasts suggest EPS growth of 8% this year, which I think supports the 2020 Softcat share price appreciation. The gain does put the shares on a forward P/E of around 35. But sales are growing strongly. And, as my Motley Fool colleague Edward Sheldon points out, Softcat is very much a ‘picks-and-shovels‘ player in the IT technology business.
Online technology and cloud-based computing has come a long way in the past couple of decades, but I think it’s still very much in its infancy when we consider its true potential. Edward said he’d buy at July’s P/E of 29. On today’s valuation, I’d still buy.
