It’s been a while now since the markets have seen a major stock split. In 2021, a number of companies, like Google, Shopify, and Tesla split their shares. Since then, it’s been pretty quiet on the stock split front. Markets are humming along well, but still companies don’t see a pressing need to split their shares and make them more “affordable” to investors.
It’s in this environment that we find Constellation Software (TSX:CSU). Trading at a princely $4,000, it certainly looks like a good stock split candidate. Indeed, it is the most “expensive” TSX stock going by the price of admission. It’s not the most expensive TSX stock in the sense of valuation, but it does cost a fairly large number of dollars to buy one share. For some investors, the cost of admission may be prohibitive.
All this raises an important question:
Why hasn’t CSU split its shares yet? Stock splits are thought to increase stock returns by making shares more affordable to investors. The fact that CSU still isn’t splitting its stock at $4,000 makes it look like the company isn’t trying very hard to acquire new investors. As we’ll see shortly, the company may have a good reason for doing this.
What CSU does
Constellation Software is a technology holding company. It operates somewhat like a venture capital firm, in that it buys companies when they are young and relatively small. Unlike a typical venture capital firm, CSU simply invests its own balance sheet money; it does not operate “funds.” Also, it holds most of its investments long term, rather than seeking “exits.”
In many ways, Constellation Software’s approach is similar to that of Berkshire Hathaway (NYSE:BRK.B), another company with an extremely high stock price. As a buy-and-hold investor, Warren Buffett doesn’t seek to juice stock prices in the short term. Instead, he seeks to grow his investments’ intrinsic value over the long term. It would seem that Mark Leonard takes the same approach with Constellation Software, holding its subsidiary companies long term.
Why hasn’t CSU split its shares?
Constellation Software’s “Berkshire-like” approach may explain why it hasn’t done a stock split. Warren Buffett never split Berkshire shares, even when they came to be worth hundreds of thousands of dollars. The reason was that he wanted to retain long-term shareholders, not short-term speculators. If a company splits its stock, it might achieve a short-term price boost, but it will also have an army of retail investors buying and selling its shares, possibly trying to influence the company to do unwise things. This is why Berkshire has never split its shares. I suspect that Mark Leonard of Constellation feels much the same way.
Verdict: Constellation Software probably won’t split its shares soon
For the reasons above, I suspect that Mark Leonard probably won’t split Constellation’s shares anytime soon. The cost of a stock split is not just the fees paid to the bankers who do the split, but also the acquisition of a new, fickle shareholder base. Mark Leonard and the rest of Constellation’s management team seem to like their company the way it is. So, they probably see no reason to split the stock.
