Here’s Why Constellation Software Stock Is a No-Brainer Tech Stock

CSU (TSX:CSU) stock was a no-brainer tech stock in 1995, and it still is today, with CEO Mark Leonard providing a forever winning strategy.

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There are many tech stocks out there that continue to get a bad rap. Yet not all of them deserve the negative attention. In fact, one tech stock that has fallen back from all-time highs includes Constellation Software (TSX:CSU) and honestly, there is absolutely no good reason for it.

Today, let’s look at what makes CSU stock such an easy choice — not just for short-term growth but also as a long-term hold.

About CSU stock

First, let’s go over a bit about CSU stock. The company is a Canadian multinational corporation that specializes in acquiring, managing, and growing software companies. Founded in 1995 by Mark Leonard, CSU stock has become known for its unique approach to acquiring and operating a diverse portfolio of software businesses across various industries and markets.

The company typically targets niche or vertical market software companies that provide mission-critical solutions to specific industries such as healthcare, financial services, the public sector, and more. Constellation Software aims to acquire companies with strong customer relationships, recurring revenue streams, and potential for further growth and expansion.

One of CSU stock’s key strategies is to maintain a decentralized structure, allowing acquired companies to operate autonomously under their existing management teams. This approach enables each business unit to retain its entrepreneurial spirit and agility while benefiting from Constellation’s resources, expertise, and shared services.

Key to success

While the acquisition strategy is a strong one, any company could claim an acquisition strategy. However, not all companies could see the success CSU stock has undergone. CSU stock has a disciplined approach to acquiring software companies. It targets niche or vertical market businesses with stable customer bases and recurring revenue streams. By acquiring companies with strong market positions and growth potential, CSU stock has been able to expand its portfolio strategically.

Furthermore, the company provides its portfolio companies with access to resources, expertise, and shared services to support their growth and operational efficiency. This includes assistance with areas such as finance, human resources, marketing, and technology.

Then there’s the company’s founder. Leonard, as mentioned, is the founder and current chief executive officer of CSU stock. Under his leadership, Constellation Software has grown significantly through strategic acquisitions and organic growth initiatives. Leonard is known for his long-term perspective and disciplined approach to business. He has emphasized the importance of acquiring companies with strong market positions, recurring revenue streams, and growth potential.

It’s working

Despite being around for about 30 years, CSU stock remains an excellent option for investors. In fact, it’s certainly a no-brainer tech stock. We can see this again and again through even its most recent earnings report.

The second quarter of 2023 brought in revenue of $2.039 billion, with net income at $103 million and free cash flow (FCF) of $14 million. By the third quarter, revenue grew further to $2.126 billion, net income to $177 million, and FCF to $367 million.

The fourth quarter saw revenue hit $2.32 billion, net income of $141 million, and FCF of $325 million. The year saw even more growth, reaching $8.4 billion in revenue compared to $6.6 billion in 2022. Net income reached $565 million, and FCF hit $1.16 billion. No guidance has been provided yet for 2024, but with first-quarter earnings on the way, investors will certainly want to pay attention to CSU stock for even more growth.

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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