Tech companies explore the fusion of science and product innovation to address consumer issues in this rapidly expanding market. With diverse subsectors, tech offers growth and stability, making it suitable for long-term, stable, or value investments. If you are considering investing in tech stocks, it is essential to figure out the right tech stock for your investment goals.
Constellation Software (TSX:CSU) is one such stock to consider.
Let’s dive into why this is among the top growth stocks on my watch list right now.
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Q2 results highlight impressive growth
Constellation Software issued financial statements for the second quarter (Q2) of 2023 and declared a dividend of $1.00 per share to common shareholders payable on October 11, 2023, to those of record by September 20, 2023, and designated as eligible dividends under the Canadian Income Tax Act.
In Q2 2023, CSU’s total revenue was $2,039 million, up 26% from $1,618 million in Q2 2022. For the first half of 2023, revenue was US$3,958 million, up 30% from US$3,050 million in the first half (H1) of 2022. This growth is primarily due to acquisitions, with 4% organic growth over the three-month and six-month periods, adjusted for currency fluctuations.
Net income for Q2 2023 was $103 million, down from $126 million in Q2 2022. Diluted earnings per share were $4.88, compared to $5.94 in the same period last year. Cash flow from operations (CFO) increased 58% to $123 million in Q2 2023 and 31% to $755 million in H1 2023.
Excellent capital allocation
The most recent balance sheet data shows that Constellation Software is facing $4.82 billion in current liabilities and $2.50 billion in long-term liabilities. However, it holds $970.0 million in cash and $1.29 billion in receivables due within 12 months.
Despite total liabilities exceeding cash and current receivables by $5.06 billion, the company’s substantial market capitalization of $43.7 billion minimizes perceived risk.
With a net debt of 1.2 times earnings before interest, taxes, depreciation, and amortization and 7.8 times interest coverage, the company demonstrates responsible borrowing practices. Additionally, 12% earnings before interest, and taxes growth over the past year improves its debt management capabilities.
Although the situation appears safe, it is recommended to monitor the strength of Constellation Software’s balance sheet due to potential changes over time.
Bottom line
It is evident that the company has been responsible and has managed to implement its business plans effectively. Given the company’s growth-by-acquisition business model, it’s also great to see the company manage its capital effectively as well as continue its considerable dividend policy. Overall, Constellation Software remains one of the top growth stocks on my watch list, and I’m waiting for any significant dips to get in.
