Is Constellation Software Stock Worth a Buy in December?

Constellation stock (TSX:CSU) is up 46% in the last year alone, but after an earnings miss should investors still consider the stock?

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If you’re an investor looking to the future, you’re likely starting to keep your eye out on some growth stocks. You may be eying stocks that others aren’t exactly rushing to invest cash into yet. Though I don’t know if that’s the case if you’re considering Constellation Software (TSX:CSU).

Even so, Constellation stock has made enormous growth in the last year. In fact, in the last decade! So let’s look at whether this stock, now over $3,000 per share, is still worth a buy in December.

First, some history

Constellation stock has been around since the birthplace of the internet in 1995. However, it went public back in 2006. Since then, the diversified software company has grown to tens of thousands of employees. The company has grown thanks to its incredible strategy of acquiring software companies and holding them long term.

Since being founded, the company has acquired over 500 businesses. Most of these acquisitions are pretty small, less than $5 million for instance. However, sometimes larger acquisitions will be pursued if the value is there.

Management has certainly proven that it can identify that value, seeing shares rise 13,221% since coming on the market as of writing! Even so, the company has managed to remain a top choice as other competition has edged in. So let’s see how it has done lately.

Earnings miss, but still climbing

Constellation earnings actually missed estimates during the latest quarter. And yet, shares still climbed past that $3,000 mark. In fact, the share price continues to climb even today. So let’s look over earnings to see what investors were so excited about.

In the quarter, revenue increased 23% year-over-year, with 8% from organic growth. This brought revenue to $2.1 billion compared to $1.7 billion the year before. Net income also increased 30% to $177 million compared to $136 million in 2022, with cash flows up a whopping 60% to $513 million.

The company continued its path of acquisitions, completing the acquisition of Optimal Blue business, paying $201 million in cash. Additional acquisitions were also completed for aggregate cash of $187 million, with deferred payments adding up to a total of $223 million. So all in all, the company was business as usual, with major growth across the board.

Analysts weigh in

Analysts continued to believe that Constellation stock would outpeform on the market, pushing price targets up even further. The solid quarter and adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) especially impressed them, with 39% year-over-year growth.

There were also multiple operational improvements during the quarter that impressed analysts. They included better organic growth, as mentioned, as well as higher core margins. So even though some thought revenue was a bit on the light side, this was more a reflection of the time rather than company performance.

So as Constellation stock continues its business as usual, it seems as though there is more growth ahead for those investing in the stock. Shares are now up 46% in the last year, but given what we’ve seen, they should rise even higher in the years to come.

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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