Recently, I’ve taken some profits from a couple of investments in my Stocks and Shares ISA. With cash on hand, I’ve been hunting for UK shares to buy.
One that has caught my eye is Computacenter (LSE:CCC). Forget the CCC ticker, recent performance has been AAA, with the stock up by a cracking 108.6% over the past year, making it the FTSE 100‘s best-performer over this period.
For context, that crushes Rolls-Royce‘s 43.7%, though admittedly the engine maker is the far better performer over the longer run.
What’s behind Computacenter’s dramatic sudden rise? And should I add it to my ISA in August?
Booming AI demand
For those unfamiliar, Computacenter is an IT equipment and services provider. Its largest unit is technology sourcing, which involves procuring and distributing things like PCs, laptops, servers, and data centre kit for organisations and businesses.
If that data centre bit made your ears prick up, then your intuition is spot on. That’s what has put rocket-boosters under the business, sending the share price flying.
Last year, revenue jumped 33% to £9.2bn, with enterprise and hyperscale customers in North America driving growth. Its professional services business is also directly benefiting from super-strong AI and cybersecurity demand.
In July, the company released a confident trading statement, saying performance was “ahead of our expectations, following an excellent first quarter“. As such, it now expect first-half adjusted pre-tax profit to be roughly double last year’s £81.5m.
Obviously, this is music to shareholders’ ears.
In North America, we achieved even stronger than expected volume growth with hyperscale customers, benefiting both Technology Sourcing and Professional Services. The UK also delivered excellent growth in Technology Sourcing, including further AI-related projects, and strong growth in Professional Services.
Computacenter.
At the end of June, Computacenter’s committed product order backlog was also well ahead of December’s £7.1bn (which was up 200%). We’ll learn more in September’s full update.
Digging deeper
Sadly, after the torrid run, the dividend yield is modest at just 1.53%. I could aim for much higher income elsewhere in the FTSE 100, so there’s a trade-off here. The main case for investing is plenty more share price growth.
Of course, that’s possible — likely even — with a big order backlog and the AI revolution in full swing. But management did say last month that it’s facing a “tougher comparative in the second half of the year“.
That’s corporate speak for growth potentially slowing. In my eyes, an unexpected slowdown in growth is the key risk here, especially when the shares aren’t conventionally cheap, at 21 times forward earnings.
Finally, Computacenter’s profit margin is structurally low, at around 3%. This isn’t a problem when an established business is enjoying strong volume growth and the balance sheet’s in terrific shape. But it’s worth flagging nonetheless.
Should I buy Computacenter shares?
Weighing things up, I’m going not going to buy the shares as I already have plenty of portfolio exposure to the AI revolution, both direct and indirect.
That said, I wouldn’t blame any investor for considering this FTSE 100 stock. By 2028, capital expenditure from the leading hyperscalers (Alphabet‘s Google, Amazon, Microsoft, etc) is expected to top $1trn.
That’s fertile ground for further growth, making the Footsie stock worthy of further research.
Should you invest £5,000 in Computacenter Plc right now?
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Ben McPoland has no position in any of the companies mentioned.
This story originally appeared on Motley Fool
