The prospects for Santander (LSE: BNC) appear to be somewhat uncertain at present. The company’s shares have experienced a fairly steady decline in recent months, falling by over 23% since the start of the year. As with a number of global stocks, the company’s market value increased in the first part of the year, but has declined due, in part, to fears surrounding the world economy’s growth prospects.
As a result, the bank now trades on a relatively low valuation. But could a FTSE 250 growth share which released an investor update on Wednesday offer stronger total return potential over the long run?
Growth potential
The FTSE 250 company in question is IT infrastructure technology and services provider, Softcat (LSE: SCT). It released a trading update which showed that customer demand has been strong across all of its segments during the first quarter of its financial year. It’s been able to deliver growth in revenue, gross profit and operating profit versus the same period of the previous year. It’s also been able to maintain momentum in terms of building scale and developing its offering. Its Irish office, which opened during the period, has started well.
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An ability to increase customer numbers and gross profit per customer could lead to rising levels of overall profitability in the long run. It seems to be well-placed to deliver a growing bottom line, with a broad offering potentially catalysing its financial prospects. However, with the stock having a price-to-earnings (P/E) ratio of over 20, it may lack a margin of safety at a time when a number of FTSE 350 stocks are trading on low valuations after recent market falls.
Low valuation
In contrast, the Santander share price appears to be cheap at the present time. Following its aforementioned decline during the course of 2018, it now has a P/E ratio of around 7.5. This indicates that it has a wide margin of safety, and that investors may be pricing in potential challenges for the business in some of its key markets.
Of course, this isn’t a major surprise. Fears surrounding the outlook for the UK have been ramped up in recent months. The Brexit process could include further twists and turns, and this could disrupt the financial performance of a number of companies which operate in the UK. Similarly, on a global level, there are continued concerns about the impact of tariffs on imports. And with further US interest rate rises seemingly ahead as GDP growth remains high, the cost of servicing debt could increase and squeeze profitability across various regions and industries.
Despite the risks it faces, Santander appears to offer investment potential for the long run. It may experience a period of uncertainty, and further share price falls cannot be ruled out. But with what seems to be a wide margin of safety, it could have appeal for value investors, in my opinion.
