Softcat supplies IT infrastructure. These centre around four core areas: cyber security, IT intelligence, hybrid infrastructure, and digital workspace tools. It has several key strategic relationships with partners such as Adobe, Cisco, Dell, and Amazon Web Services.
Softcat saw a significant rise in its performance thanks to the technology boom during the pandemic. There was an enormous demand for cloud solutions linked to home working, for example. With this new technology-led world and its key partnerships and recent performance, Softcat is high in the tech section on my best stocks to buy now list.
Share price and performance
As I write, Softcat shares are trading for 1,911p per share. This is a 55% increase based on its share price of 1,226p this time last year. In 2021 to date, its share price has increased over 35% with the reporting of positive results coupled with increased demand.
In Softcat’s half-year report released in March for the period ended 31 January, it reported gross profit rose by over 20% and operating profit rose by over 40%. Its interim dividend also shot up by over 18%.
In a Q3 trading report released at the end of May, Softcat reported further double-digit year-on-year growth in revenue, gross profit, and operating profit. It added that results for the full year will be ahead of expectations.
Best stocks to buy now have risks and rewards
Margins in software are high, therefore competition is rife and intense. Softcat has a slight disadvantage in that it is not actually a software creator but a reseller. Reselling is a large and fragmented market. If Softcat were to lose a partnership or be beaten by a competitor, that could affect progress, profitability, and investment viability.
In addition, Softcat is priced high with a price-to-earnings ratio of nearly 42. It is also trading at all-time highs, which makes me wonder if it can go any higher. Any blip in the market or external factors such as a price rise from its suppliers may affect its bottom line too.
Overall, I believe Softcat could be one of the best stocks to buy now out there in the tech sector. I am seriously considering it for my portfolio. It has a good track record, an excellent reputation and some lucrative strategic partnerships. I know past performance is not a guarantee of the future, but I always refer to it as a gauge when investing in my portfolio.
Softcat is well placed to ride the technology boom and benefit in my opinion. I expect its share price to rise when annual results are announced soon.
Jabran Khan has no position in any shares mentioned. The Motley Fool UK has recommended Softcat. 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.