Why Constellation Software Inc. Is Canada’s Tech Giant

With strong earnings momentum, Constellation Software Inc. (TSX:CSU) is an expensive stock worth every penny.

| More on:

Investors looking longingly at stellar earnings results from Amazon and Alphabet Inc. (Google’s new holding company) have a Canadian option to consider: Constellation Software Inc. (TSX:CSU).

The software-business giant’s stock is up 66% year-to-date, with a stunning five-year return of 1,200%. The company gets little media attention, but will be in the news this week when it releases its third-quarter results on October 29. Investors will be hoping for similar results compared with the second quarter, when Constellation grew its revenue by 7% to $444 million and reported adjusted net income of $80 million, up 23% from the prior year’s second quarter.

Analysts are keen on Constellation, even though the triple-digit stock is expensive by Canadian standards. Jason Donville, president and CEO at Donville Kent Asset Management, expects the company to grow by at least 25% in 2015 and to “once again generate superior, risk adjusted returns for its shareholders.”

Other analysts also like Constellation. Morningstar recently listed the company as a favourite of institutional investors, with an annual earnings momentum of 44%.

Constellation is known for its shrewd acquisitions. Although Q3 has been relatively quiet, in September the company closed a deal through its Perseus division to acquire the Market Leader business from Zillow Group. Market Leader is a CRM software system for the real estate industry. The deal cost Constellation US$23 million; it’s not a bad price when you consider that two years ago, the Market Leader group sold for $355 million when Zillow purchased Trulia, the former owner of Market Leader.

Constellation completed eight smaller acquisitions in Q2 worth $112 million.

Constellation pays a quarterly dividend of $1 per share, a number that could be considered low considering the company has a market cap of $12.31 billion and an enterprise value of $12.6 billion. The company has maintained its dividend at this price since it began paying a dividend in April 2012.

Constellation may be a stock for investors with deep pockets, but considering its track record, it’s unlikely to be a company you’ll regret buying.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Doug Watt has no position in any stocks mentioned. David Gardner owns shares of Alphabet (A shares), Alphabet (C shares), and Amazon.com. Tom Gardner owns shares of Alphabet (A shares) and Alphabet (C shares). The Motley Fool owns shares of Alphabet (A shares), Alphabet (C shares), and Amazon.com.

More on Dividend Stocks