Growth stocks can be very exciting to have in your portfolio. As the name suggests, this is a stock that will see a rapid appreciation in its value. While growth stocks are generally associated with younger companies, some companies which are more mature can still exhibit the potential for rapid growth in the future.
Most Canadians investors have heard of Constellation Software (TSX:CSU) prior to reading this article. They are one of the constituents of DOCKS, a tongue-in-cheek response to America’s FAANG stocks, which is composed of Canada’s top technology companies. But are you aware just how good of a company it is?
What does Constellation do?
Constellation has grown to be one of Canada’s top stocks over the past decade by focusing on acquiring great vertical market software companies. To ensure Constellation only acquires the best companies, it vets possible acquisitions based on exceptional management, consistent profitability, and a proven record of market-beating growth.
Once Constellation completes an acquisition, it does not intend on taking control of operations. Instead, it will work with the new companies and identify areas that can be improved to bring them to the next level.
It is this coaching that has shown time and time again that Constellation is capable of creating an ecosystem of excellence within its umbrella of subsidiaries.
The company has top-notch management
If you have read my article on founder-led companies, then you will probably know where this is headed. Even though the company has grown so much over the past decade, I believe in Constellation’s potential growth moving forward because its management is top notch.
Mark Leonard founded the company in 1995 and is still very much involved with Constellation’s operations as the company’s president and chairman. The other members of the executive team have also been with the company for two decades, or very close to it. Chief Financial Officer Jamal Baksh is the newest member of the executive team having joined in 2003.
Mark Leonard’s President’s Letter to shareholders is the stuff of legends. Originally written as a quarterly letter, explaining the ins and outs of the company, Leonard decided to switch to an annual format in 2009. In 2017, he decided to change his tune again and decided to only write when he has “something new and important to communicate.”
Leonard has also decided to limit the information the company discloses regarding acquisition activity. He believes that there are a large number of companies attempting to emulate the Constellation growth strategy. Because of this, it would benefit the company’s future growth to keep that information under wraps.
While it may seem odd to some, I think this speaks volumes to the management’s dedication to staying ahead of Constellation’s competitors and on top of its industry.
Constellation was an absolute powerhouse in 2010 and the ensuing decade, as its stock grew an astonishing 3615% over the past decade. As the company continues to implement its proven strategy in acquiring great companies, investors should have little doubt that Constellation can continue to grow in the future.
If you are interested in adding a solid company in the tech industry to your portfolio, look no further than Constellation Software.
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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 Jed Lloren has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Constellation Software.