I’m looking for stocks to buy and hold for the long term that will continue to grow and provide consistent returns. FTSE 250 incumbent Softcat (LSE:SCT) could be one such stock. Should I buy the shares for my holdings?
IT reseller and services provider
As a quick reminder, Softcat is an IT infrastructure specialist and reseller. It resells tech products such as hardware and software to businesses on behalf of tech giants that create products but don’t sell directly to retail. It also provides infrastructure, and other IT consultancy services to its customers.
So what’s happening with Softcat shares currently? Well, as I write, they’re trading for 1,452p. At this time last year, the stock was trading for 1,977p, which is a 26% drop over a 12-month period.
A FTSE 250 stock with risks
One of the first issues with Softcat shares is the current rather high valuation. On a price-to-earnings ratio of 27, is growth and future positive forecasts perhaps already priced in? On the other side of the coin, Warren Buffett once said, “It’s far better to buy a wonderful company at a fair price than a fair company at a wonderful price.” Could Softcat be worth this valuation as a quality business? I will consider fundamentals and other aspects to help me make my decision.
Next, the reseller market is saturated and competitive. Softcat is a major player in this market, however. Firms like Softcat, and its competitors, are vying to get the best deals from manufacturers and tie down their customers to multi-year agreements. The jostling for new customers and long-term agreements is pivotal to securing long-term revenue streams. If Softcat were to lose traction against a key competitor, it could have an impact on performance and returns.
The bull case and my verdict
So to the positives then. Firstly, I am buoyed by Softcat’s track record of performance and growth, although I am aware that past performance is not a guarantee of the future. Looking back, I can see that it has grown revenue and profit year over year for the past four years.
Good investor returns usually come with sustained performance growth. Softcat ticks this box for me too with regular dividend payments. Currently, the shares’ dividend yield stands at 3%. This is higher than the FTSE 250 average of just under 2%. I am conscious that dividends are never guaranteed and be cancelled at the discretion of the business, however.
Next, the current tech market and continued adoption of technology should benefit Softcat and its future performance. More businesses continue to adopt digital solutions and Softcat supports this with its offering and services.
Overall, I really like the look of Softcat shares and would be willing to buy some for my holdings. It has a good track record of performance and growth, boosts my passive income stream, and operates in a burgeoning market too. I believe it is a FTSE 250 that could boost my holdings for the long term.
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Jabran Khan has no position in any of the 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.