Constellation Software (TSX:CSU) has been one of the best success stories on the TSX today. And that’s saying something. The tech stock came on the market and absolutely surged in share price year after year, even during market downturns and the pandemic.
Even today, shares of Constellation stock recently passed the $3,000 mark. And yet it continues to climb! So, what is the magic power that this stock has? And will it continue to climb into 2024?
Management on the mark
The reason perhaps that Constellation stock is so successful is it has a great management team. That team is able to identify the best software companies that provide essential services not just in Canada but around the world.
Clearly, they’ve been doing something right. Just in 2023 alone, shares of Constellation stock are up 47%! That’s absurd, given not just its high share price but also given that it continues to trade in a volatile market. One that remains a bear market as of writing.
However, the big question becomes whether it can keep it up. So, let’s take a turn and look at Constellation stock’s earnings report from the latest quarter for clues.
Earnings come in
During the most recent earnings report, Constellation stock reported revenue growth of 23% to $2.126 billion. Net income also increased by 30% to $177 million, attributable to common shareholders, showing the strength in its share price.
Furthermore, the company continued to complete acquisitions — ones such notable one was the Optimal Blue business; Constellation paid $201 million for the purchase. Additional acquisitions will come in at $223 million for the company as well.
Meanwhile, cash flows from operations also jumped 60% to $513 million, and free cash flow also increased by 60% to $367 million. Overall, investors were quite happy with the performance, sending shares up higher in response. And they were the only impressed ones.
Analysts weigh in
Analysts weighed in on the performance, increasing their target share price for Constellation stock in the process. The company continues to hold an outperform rating based on its stable growth method.
The solid quarter saw multiple improvements, in the words of one analyst. Earnings per share were well over the consensus, climbing 56% year over year. Better organic growth and higher core margins helped the company perform.
Even though acquisitions were lower than expected, the company is believed to be scaling its mergers and acquisitions model. This has been seen from its capital used for acquisitions year to date. Meanwhile, it also has spinoff European stock Topicus.com to think about.
Bottom line
While it’s true that Constellation stock remains expensive in terms of pretty much every metric, it also looks to be growing from here. I don’t expect shares to come down by a large amount until perhaps the next economic slowdown. And even then, I’d use it as more of an opportunity to get in rather than ignoring the stock, as others have in the past. So, will it continue to rise? Absolutely, and who knows when it will come back down?
