Softcat PLC (LSE:SCT) shares fell 4.5% on Thursday after JPMorgan warned that earnings expectations may be too high, raising concerns about the sustainability of recent profit growth.
In a note to clients, the bank said it was placing Softcat on "negative catalyst watch" ahead of its full-year results.
This means it sees a risk that the upcoming results could prompt a negative reaction in the share price if guidance disappoints or expectations prove too optimistic.
JPM said that recent gains in earnings have been supported by large, one-off deals, most of which are concentrated in a single customer. These contracts can be lumpy and may not repeat next year, making comparisons for 2026 more difficult.
“Overall, we conclude that consensus may not reflect the extent to which large deals have contributed to FY25 EBIT growth,” the analysts wrote.
They expect around 12% underlying earnings growth through 2026 but warned that forecasts could face low to mid-single-digit downgrades if deal momentum slows.
JPM also noted that the risk is not fully appreciated by investors and is not priced into current market expectations. The shares continue to trade at a premium following a series of upgrades, which the bank said indicates high expectations.
If management signals that recent large deals were exceptional rather than repeatable, guidance for 2026 could fall short of what the market is currently assuming. Softcat's full-year results, covering the year to July, are expected in the coming weeks.
The shares fell 74.78p to 1,599.22p.