The FTSE 250 index can be a source of lucrative investment opportunities. In this area of the UK stock market, there are a lot of high-growth stocks that are flying under the radar of mainstream analysts and investors.
One FTSE 250 company I’m bullish on right now is IT specialist Softcat (LSE: SCT), which recently saw its share price fall by around 50%. I’ve been invested in this company for a number of years now, and last week, I took the opportunity to buy more shares. Here’s why.
Better-than-expected results
When I looked at Softcat shares recently, several things jumped out at me.
One was the fact that the company just posted better-than-expected half-year results.
For the six-month period to 31 January, Softcat posted gross profit of £177.1m (up 17.9% year on year) and operating profit of £63.1m (down 1.7%). Both figures were ahead of analysts’ estimates.
During the period, the company’s customer base grew by 3.3%. This represented the best growth since the onset of the pandemic, which is very encouraging.
Looking ahead, Softcat provided better-than-expected guidance for the full financial year (ending 31 July). “Due to the outperformance in the first half the board now expects that the outturn for the full year will be slightly ahead of previous estimates,” it said.
Overall, there were a lot of positives in the H1 results. This should help the company’s share price.
Dividend hike
Another thing that stood out to me was that the company just raised its interim dividend by 9.6% to 8p per share. That’s a healthy increase. To me, it indicates that management is very confident about the future.
It’s worth noting that for the full year, analysts expect Softcat to pay out around 38p per share in dividends. That translates to a yield of nearly 3% at today’s share price.
So, this stock could potentially generate a solid level of income for me going forward. Dividend forecasts can be off the mark at times, however, so I’m not banking on that level of payout.
Set to climb higher
Finally, the recent share price action here also looked really interesting to me.
Between September 2021 and October 2022, this FTSE 250 stock was locked in a nasty downtrend.
It now looks to have broken out of this dive, however.
Recently, the stock has formed what’s known as a ‘double-bottom’ pattern. These tend to signal a change in the trend from down to up.
Putting this all together, I think Softcat shares look set to resume their upward trend.
An attractive investment opportunity
I could be wrong, of course.
If sentiment towards tech stocks deteriorates, or the company sees slower-than-expected growth due to economic conditions, the share price could fall from here.
However, with the stock’s price-to-earnings (P/E) ratio currently in the low 20s, I like the risk/reward skew.
All things considered, I think this FTSE 250 stock has the potential to deliver attractive capital gains and a healthy level of dividend income for me in the years ahead.
