Constellation Software (TSX:CSU) is one of the most prolific stocks in Canadian history. For those who aren’t familiar with this company, know that it’s a tech conglomerate. Constellation Software’s business focuses on acquiring great vertical market software (VMS) businesses and helping them turn into exceptional business units.
Constellation Software’s acquisition process targets very specific businesses, and it’s shown over the years that it’s a very solid acquisition model. The company requires potential acquisitions to be exceptional businesses that have shown consistent profitability and above-average growth. In addition, the business must have an outstanding manager capable of continuing to operate the business at a very high level.
Historically, Constellation Software has focused on small- and medium-sized VMS businesses. However, over the past couple of years, the company has begun to incorporate the acquisition of large VMS businesses. For example, Constellation Software acquired WideOrbit last year, resulting in the spinoff of Lumine Group.
How has the stock performed?
As mentioned previously, Constellation Software stock is perhaps the most prolific stock in the history of the TSX. As of this writing, Constellation Software stock has gained more than 20,000% since its initial public offering (IPO) in 2006. However, if you didn’t get in during its IPO, you still could have generated outstanding returns in the years after.
If you invested in this company in late October 2007, you could’ve seen your shares grow by about 18,500%. That represents an average annual return of nearly 38%. To put that into perspective, the TSX has generated an average annual return of about 2.5% over the same period. In other words, an investment of $10,000 could have turned into $1.86 million.
If you had begun buying shares of Constellation Software stock in 2012, you’d still be in a very good spot today. Since then, Constellation Software stock has generated an average annual return of 39%. Because the time period isn’t as long as the previous example, your $10,000 would have only turned into about $536,000.
Should investors buy shares of this stock today?
With that said, many investors may be wondering if it’s too late to invest in this company. I would say no. In fact, this is one of the largest positions in my personal portfolio. The reason I believe Constellation Software could continue to reward shareholders is because the company continues to be committed to growth.
As mentioned previously, the company has finally begun to incorporate the acquisition of large VMS businesses over the past couple of years. That was a massive change for the company, which had previously ignored those sorts of opportunities. In addition, Constellation Software’s founder, Mark Leonard, continues to lead this outstanding company.
As the final way to convince you of its potential, consider that Constellation Software stock has gained more than 57% over the past year. I firmly believe that this stock still has a lot of room to grow.
