The best way to multiply your capital and create a long-term financial portfolio is holding the right mix of proven growth stocks and value/dividend-oriented companies as well. Balancing such a portfolio mix can be difficult, and there is a rotation going on in the market. But for those looking at the Canadian software space, Constellation Software (TSX:CSU) remains a tech giant I think is worth considering for a number of reasons.
For those looking to create a millionaire-maker portfolio, let’s dive into why Constellation Software may be worth considering right now.
Growth by acquisition has worked
Any company with a growth-oriented business model that can prove the efficacy of its returns over time is one investors should immediately pay attention to. In many respects, Constellation Software is one such company.
The company is a dominant player in the Canadian software sector, having decades of experience in managing and acquiring vertical market software firms. The company generally purchases small to mid-sized companies in the software space and scales them up methodology, which has shown to be very successful over time.
Just like a venture investor, Constellation purchases profitable businesses, invests more money in them, and leverages its knowledge to help those businesses grow faster while operating under the Constellation brand. Constellation has a degree of stability that most others do not since the organization concentrates on previously profitable businesses rather than acquiring emerging ones.
Solid long-term performance
Since 2006, when Constellation Software went public, its share price has surged more than 200-fold. Those kinds of returns are certainly very difficult to find. And now, it’s going to be even harder for the company to repeat these results, simply due to the law of large numbers.
That said, the company’s performance has continued to beat the market in recent years, largely due to its aforementioned business model. The software firm’s ability to acquire and grow a portfolio of specialist software companies has paid great dividends over time. Notably, this model is repeatable and scalable, meaning I think plenty more upside could be on the horizon for the company over the long term.
Bottom line
At roughly 32 times forward earnings, Constellation Software’s valuation is certainly expensive. That’s relative to the market and most Canadian stocks (even other growth peers in its sector).
However, this is a market where I think investors are willing to pay up for quality. So long as that remains the case over the long term, I think Constellation Software is a stock that’s worth adding, particularly on any significant dips moving forward.
