Tech stocks have been a staple in the portfolios of most investors who are in it for the long term. Indeed, many patient investors have benefited greatly from simply holding a diversified portfolio of high-growth tech stocks.
Canadian tech stocks have been under the radar for a long time but have solid potential to grow or build wealth in the long term. With just 19% of annualized returns, the tech stocks have not made the headlines lately, but if you talk about numbers, then a mere 18% of returns could have made $24,000 from an investment of $10,000.
In today’s article, only one tech stock will be in focus. Let’s find out what to do with Constellation Software (TSX: CSU).
Should you buy, sell, or hold this stock?
Constellation‘s fundamentals are impressive
Do you know why expert investors pay special attention to a company’s EPS (earnings per share) while buying its shares?
This is because if a company has a decent EPS, its share price will follow. In that context, you can see that Constellation Software’s EPS has had a growth rate of 16% per year. Additionally, the software company has giant insider ownership. Owing to its current value of US$4 billion, one can derive that investors are mindful of their investments in this company and are hopeful of its growth.
Constellation’s Perseus Group to Obtain Black Knight’s Optimal Blue
Recently, CSU’s Perseus Group has entered into an agreement with Black Knight and Intercontinental Exchange. The software company will acquire the Optimal Blue business of Black Knight for a price of US$700 million.
The closing of this deal is tied to conditions such as the closing of ICE’s acquisition of Black Knight and Constellation’s previous acquisition of Empower loan origination system in March.
CSU will benefit from this deal by landing itself in a business that includes mortgage origination, which seems like an uptrend in home financing, resulting in an increase in the stock price.
How are patient investors earning from CSU?
While investing in a company’s stock, what one should look for in the beginning are profits and ROE. Luckily, Constellation has landed itself on the impressive side of both factors.
Constellation has an average ROE of 13%, which is impressive considering the overall condition of the software industry. However, CSU utilizes a lot of debt to boost its returns. Although this cannot be a good trait to consider for investors, it should be noted that the company manages its debt responsibly.
CSU has had an EBIT growth rate of 6.5% each year, while its net debt is just 0.87X of its EBITDA. This indicates that the company doesn’t borrow unnecessarily. Also, it has a market capitalization of US$43.6 billion, while its liabilities stand at US$4.5 billion.
Additionally, the company has also boosted its dividends, which stand at a 0.20% annual dividend yield.
Bottom line
If you are a patient investor with long-term investment goals, you can definitely add this tech stock to your portfolio to get lucrative returns in the years to come.
