Constellation Software Inc. (TSX: CSU), one of the leading providers of software and related services to a select group of public and private sector markets, announced its second-quarter earnings results after the market closed on Wednesday, and its stock responded by falling 3.5% in Thursday’s trading session. Let’s take a closer look at the results and the fundamentals of its stock to determine if we should use this weakness as a long-term buying opportunity or a warning sign.
Breaking down the Q2 results
Here’s a breakdown of six of the most notable statistics from Constellation’s three-month period ended on June 30, 2017, compared with the same period a year ago:
| Metric | Q2 2017 | Q2 2016 | Change |
| Public sector revenue | US$406.28 million | US$353.53 million | 14.9% |
| Private sector revenue | US$193.81 million | US$175.14 million | 10.7% |
| Total revenue | US$600.08 million | US$528.67 million | 13.5% |
| Adjusted EBITA | US$154.6 million | US$130.5 million | 18.5% |
| Adjusted net income | US$112.3 million | US$89.9 million | 24.9% |
| Adjusted earnings per share (EPS) | US$5.30 | US$4.24 | 25% |
The company noted that these strong results were primarily attributable to growth from its acquisitions, but it also noted that it achieved organic growth of 1% in both the second quarter and first half of 2017.
Should you buy Constellation’s stock on the dip?
I think it was a fantastic quarter overall for Constellation. However, the results came in mixed compared with analysts’ expectations, which called for adjusted EPS of US$5.42 on revenue of US$587.85 million, so that’s what caused its stock to fall 3.5%.
Estimates aside, I think the decline in Constellation’s stock represents a very attractive long-term buying opportunity, because it’s one of the technology sector’s best growth stocks. It reported revenue growth of 13.8% to US$1.16 billion and adjusted EPS growth of 35.7% to US$9.76 in the first half of 2017 compared with the year-ago period, and current estimates call for revenue growth of 12.7% to US$2.4 billion and adjusted EPS growth of 17.4% to US$21.89 in the full year of 2017, which I think it could easily achieve.
Furthermore, Constellation has been highly active when it comes to making acquisitions, including 16 acquisitions that were completed for aggregate cash considerations of US$71 million in the second quarter, and I think it will continue to do so going forward, which will help fuel future growth.
With all of the information provided above in mind, I think Constellation Software represents one of the best long-term investment opportunities in the technology sector today. Foolish investors should strongly consider using the post-earnings weakness to begin scaling in to long-term positions.
