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.