Canadian tech giant Constellation Software (TSX:CSU) has generated more than 19,000% in total returns to its stockholders since going public in 2006. Its successful execution of an acquisitions-led growth strategy has changed lives for early investors in CSU stock. Fast forward to 2023, the company spun out a new listing on the TSX-Venture Exchange that, if well mentored, could be an explosive opportunity for growth-oriented investors to ignore.
Rather, let’s look at two up-and-coming Canadian tech stocks on my radar. Growth investors may regret ignoring them. Let’s have a look.
Could Lumine Group stock fly on Constellation Software’s strategic wings?
Lumine Group (TSXV:LMN) is an up-and-coming Canadian tech stock you won’t want to ignore, as the recent initial public offering (IPO) stock employs the same growth strategy its parent company employed to generate more than 19,000% in stock investor returns in 17 years.
The $1.3 billion media market software stock graced the TSX Venture Exchange in March 2023 following a merger between a subsidiary of Constellation Software and WideOrbit, a successful U.S.-based media broking company that processes upwards of $35 billion in advertising revenue annually.
The company describes itself as an acquirer and grower of vertical market software in the communications and media industry. While executing a similar acquisitions-led growth strategy, Constellation Software stock generated more than 19,000% in total returns to its stock investors since 2006, including a 206% total return during the past five years.
It’s too early to tell if Lumine Group will be as successful as Constellation Software was, historically. Market dynamics may have changed, especially given the promise of wide industry disruptions from generative artificial intelligence.
That said, Lumine Group has the guidance and wisdom from Constellation Software to ride on, as it builds a new media software behemoth through acquisitions and transformative reorganizations.
Most noteworthy, the small-cap company could self-finance its future acquisitions because it’s capable of generating ample free cash flow from its operations. Lumine Group reported $15 million in net cash from operations during the first three months of 2023 — a 212% year-over-year growth. About $11.7 million of operating cash flow was free cash flow available to shareholders.
Cash flow is the lifeblood of any organization, and in Lumine Group’s case, free cash flow is the sustaining fuel for its acquisitions-led growth strategy.
Lumine Group stock is up 17.4% this month.
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Watch Ceridian HCM Holdings: The tech stock transforming paydays
Human resources management software technology provider Ceridian HCM Holdings (TSX:CDAY) recently broke into profit after several quarters of sequential revenue growth and cost containment. During the first quarter (Q1) of 2023, the $13.8 billion tech stock grew sales by 26.4% year over year (or 29.3% on a constant-currency basis) to US$370.6 million, exceeding management expectations for US$359-US$363 million. There’s more for investors to like, as Ceridian HCM’s Dayforce wallet makes every day a potential payday for employees globally.
Ceridian expanded Q1 total gross margins from 35.2% to 43.3% of sales, as customers continue to adopt its cloud software offerings, where gross margins reached 77.3% recently. The company grew adjusted operating earnings margins from 15.1% during the first three months of 2022 to 23.9% of revenue during the same period in 2023. Operating cash flow more than doubled to US$11.3 million in Q1 from US$5.5 million a year ago.
Growth has been beautiful in key areas for five consecutive quarters, and the company is keeping recurring operating expenses, especially sales, general, and administration expenses, stable while growing revenue.
CDAY stock has generated a 29% return over the past 12 months and a 123% investment return since its IPO in 2018. Shares trade 44% below their all-time highs seen in late 2021. Persistent execution could see the tech stock steadily rise in price again over the next few years.
Canadian tech stock investors may hate themselves for ignoring Ceridian HCM Holdings stock if it ever reclaims its all-time highs again during their investment time horizons. A full recovery in the stock would see it rise nearly 80% from current trading levels.
