If you’ve studied the Canadian stock market at all, then you should have stumbled upon Constellation Software (TSX:CSU). Listed on the TSX60, this is one of the largest and most important companies in Canada. However, if it’s somehow managed to fly under the radar, then you must know that Constellation Software is a massive tech conglomerate.
This company has made a name for itself by becoming a serial acquirer of vertical market software (VMS) businesses. Since its founding in the mid-1990s, Constellation Software has acquired hundreds of VMS businesses. This stock has grown a tremendous amount since its founding and its initial public offering (IPO). With that said, some investors think its best days are behind it.
In this article, I’ll discuss whether Constellation Software stock is a buy in March 2023.
Why should investors be interested in Constellation Software?
As I mentioned earlier, Constellation Software has grown tremendously over the past two decades. This growth has been reflected in its stock price over the years. In May 2006, Constellation Software stock was valued as low as $18.30. Today, one share of Constellation Software stock would cost an investor a whopping $2,339.14. That represents a compound annual growth rate (CAGR) of more than 34%. That greatly outpaces the growth of the broader market.
However, with that massive growth in mind, investors may worry about the law of large numbers. That’s a concept where companies are unable to maintain high growth rates as they increase in size. Looking at Constellation Software stock’s performance over the past five years, investors can see that it has grown at a CAGR of only 21% over that period. This suggests that the law of large numbers may, in fact, be affecting Constellation Software stock.
However, with such a strong growth rate for a company of this size, the high potential payoff for comparably low risk should be very appealing.
In addition, Constellation Software’s founder, Mark Leonard, continues to lead the company as its president. In my opinion, as long as Mr. Leonard remains at the head of this company, then Constellation Software is an easy choice for any investor today.
Recent changes to this company
Just like any other business, it’s imperative that Constellation Software continues to seek ways to stay ahead of its competition. For most of its history, this company has focused on acquiring small- and medium-sized VMS businesses. However, in 2021, Constellation Software announced that it would finally start targeting large VMS businesses for acquisition.
Of course, that could lead to difficulties in the short term. However, if Constellation Software’s proven anything over its nearly three-decade-long existence, is that the company has ways of getting what it wants. Constellation Software has demonstrated its eagerness to acquire larger businesses when its subsidiary, Lumine, set forth the process to take over WideOrbit, an American media business.
That WideOrbit acquisition deserves an entire article on its own, but investors should know that the transaction required Constellation Software to spin out Lumine as its own entity in order to complete that transaction. The reason for that being, Constellation Software can use shares in Lumine group to help pay for the transaction without having to do a full cash deal.
Constellation Software is a massive tech conglomerate that Canadian investors should be familiar with. This company has a long history of success and is committed to maintaining its position at the top of its industry. With its founder continuing to lead Constellation Software through new endeavours, I believe this is a stock that could pay off in the long run. Constellation Software stock is certainly worth a buy in March 2023, in my opinion.