Better Buy: Constellation Software Stock or OpenText?

These two tech stocks are both low risk as the industry starts to recover, but which is the better buy at this point?

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Tech stocks are on the rise once more, and in fact have been for quite some time. The BMO NASDAQ 100 Equity Index ETF, which follows the top 100 tech companies on the Nasdaq, continues to trade near 52-week highs. That’s quite the climb after falling 30% after hitting those highs back in November 2021.

Yet now, tech stocks are back, and two of the top Canadian tech stocks investors might be considering are Constellation Software (TSX:CSU) and OpenText (TSX:OTEX). But, which one comes out on top?

Constellation Software

Constellation stock could certainly make a case for being the best tech stock on the TSX today. It has been around for decades, with management creating a steady stream of acquisitions over the years that have proven to be nothing short of legendary.

Shares of the stock are now up 46% in the last year, and 26% year to date. While CSU continues to trade at 83.1 times earnings, the company is still marked as oversold at this point. Especially given its future performance looks pretty well in hand.

This comes as Constellation stock announced the move to spin out sub-operating groups. This is huge for future investors, as it could mean there could be a repeat of the success seen by the company in the past. This might happen over even the next 5 to 10 years.

That being said, the current size and share price have left many unable to consider Constellation stock. Spinning out could therefore create some strong success, and long-term scalability improvements. It could also increase free cash flow per share at a 30% to 35% compound annual growth rate (CAGR) over the next five years, according to analysts in a research report. So this is certainly one of the tech stocks that deserve your attention.

OpenText stock

Then there’s OpenText stock, and it’s certainly not one to be forgotten. The company has also been around for decades, increasing its share price in the meantime as it continues to not only increase its scale, but its partnerships. It now has partnerships with companies as large as Alphabet and Microsoft to provide its data storage and cybersecurity.

Shares of OpenText stock are now up 10% in the last year, but up 30% year to date. It currently trades at 35.1 times earnings, and is just shy of oversold territory, trading at 37 on the relative strength index (RSI). That’s despite the company seeing fairly large jumps in share price after the latest earnings back in May.

Part of the strong earnings comes as OpenText stock has made several acquisitions and partnerships over the last few years. This comes as the company looks to follow through with major partnerships with those larger companies, and needs support to get there.

OpenText stock, therefore, looks like it might be a good deal right now, but there are still a few balls in the air. It certainly is low risk, as is Constellation stock, but there isn’t that practically guaranteed superior growth that could come down the line.

Bottom line

When it comes down to these two tech stocks, Constellation stock looks like it might be the better buy if you’re looking for superior growth in the next 5 to 10 years. The splitting off of sub-groups will perhaps create enormous growth in the next few years. While OpenText stock will likely see strong growth as well, it might not be as much as Constellation stock at this point.

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 Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.

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