Constellation Software (TSX:CSU) is an evergreen tech stock that has made its loyal shareholders millionaires. It is popularly called the Canadian Berkshire Hathaway of tech stocks as it acquires small software companies. With this acquisition model, Constellation stock has been growing at a compounding rate of over 30% in the last 10 years and continues to grow in all market situations.
$10,000 invested in this tech stock in 2009 is now worth…
If you invested $10,000 in Constellation Software in January 2009, you could have bought 356 shares at $25.25. The value of shares would be $1.4 million today as the company’s share price increased to over $3,500.
|CSU Stock Price
Such resilient growth stocks are hard to find. One often wonders, can the millionaire maker of the past be the millionaire maker of the future? After all, past performance does not guarantee future returns. And as the size of the company grows, the growth rate slows. Doubling the size of a company worth $100 million is faster. But to double the size of a company worth $10 billion takes time.
Can this tech stock continue to make millionaires?
By acquiring vertical software service (VSS) companies since 1995, Constellation has grown to a $78 billion valuation company. The growth rate has slowed, but it is growing. The company’s growth drivers are the small VSS companies it acquires. The tech market is undergoing an artificial intelligence (AI) revolution. With everything going digital and 5G connecting your cars, drones, cameras and other machines to the cloud, the number of VSS companies will only grow.
Constellation’s business model is to acquire small VSS companies that are sticky and generate regular cash flow. Its major revenue comes from the maintenance of the software. It means Constellation acquires companies with an established consumer base, reducing the risk of getting cash-strapped. Since these software solutions are mission-critical, clients are reluctant to switch to another provider. Hence, I am confident that Constellation can continue to make its shareholders millionaires.
There is ample scope for Constellation’s acquired companies to grow organically, alongside the increasing adoption of digital solutions. Also, Constellation has scope to accelerate its acquisitions as it is more resourceful and has more new verticals to tap. Assuming the stock’s compounded annual growth rate (CAGR) slows to 25%, it can still convert $10,000 into $1 million in 21 years.
How to accelerate your journey to becoming a millionaire
If you understand the business cycles, companies in early growth stages have higher risk. But they also have a higher potential to make you rich since their growth is vertical. Constellation has moved ahead in the growth stage. While I suggest investing $10,000 in Constellation, diversify your investments in two to three stocks in their early growth stage.
Payments platform company Nuvei is one such stock. It started trading in mid-2020 and has grown its revenue gradually. However, its stock price recently traded below the IPO price after it got bullied by a short seller. With the bullying over, the stock could return to its growth journey as the market recovers.
Another growth stock with millionaire-making potential is Ballard Power Systems (TSX:BLDP). All revolutionary companies start with a loss. Ballard Power Systems’ stock has hit a 52-week low as it is making more losses than revenue. While the operating margin is increasing, hydrogen fuel cells are still in the early adoption stage.
While Ballard has made the technology workable, it has yet to make hydrogen fuel cells economically feasible. There is a risk of customers cutting their budgets for futuristic projects like hydrogen cars. However, it is a stock to buy and hold for 10 to 15 years, as hydrogen cars are an important element in the transition to cleaner energy.
Instead of leaving your million-dollar dream to one stock, invest in two to three high-growth stocks. If even one stock grows 10,000%, you could become a millionaire in less than 20 years.