You thought $1,000 was too high for just one share in 2019. When that share crossed the $2,000 mark in 2021, the previous $1,000 looked cheap. This cycle repeated, and the stock crossed the $3,000 mark in November 2023, the $4,000 mark in July 2024, and is now heading to cross the $5,000 mark. This is a tech stock that is on a long-term growth trend, compounding at an accelerated rate of 30%.
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A tech stock that has created millionaires
Constellation Software (TSX:CSU) stock has tripled in five years and is now trading above $4,700, coming closer to BMO Capital’s revised price target of $4,800. This stock has created millionaires and has the potential to make more.
Had you invested $7,100 in November 2019 and purchased five shares of Constellation Software, you would be sitting on a portfolio of $23,600. And the same $7,100 invested in November 2014 would now be worth $103,840. They say time is money and Constellation proves it. This stock has grown at a compounded annual growth rate (CAGR) of 31% in the last 10 years.
This growth will continue as Constellation keeps acquiring new vertical-specific software (VSS) companies with mission-critical applications and stable cash flows. Its diverse portfolio of these software companies is efficiently segregated into six more holding companies. Constellation has also started spinning off these holding companies, giving them the freedom to grow at their own pace. Topicus and Lumine trade separately on the stock exchange.
These companies are replicating Constellation’s model and trying to attain the compounding they achieved. Constellation will get a share of the pie from the spin-offs. The power of compounding will continue. And so far, the speed of growth remains unchanged.
This tech stock can continue to make more millionaires
Constellation Software derives its share price based on the overall value of the company. With every new acquisition, Constellation’s size grows. Add to this 2% organic growth. If you are wondering if the small software companies’ universe will shrink, digitization is creating more companies every day. While Constellation is acquiring companies more companies are springing up. And software companies have low entry barriers as they are not capital-intensive. It means new companies will keep coming up.
The artificial intelligence (AI), 5G ecosystem, and virtual reality (VR) trends will create more opportunities for new-age software companies. Constellation could gradually focus on not only acquiring vertical-specific software companies but also companies that specialize in AI, VR, or any other tech of a specific vertical that can generate assured cash flow.
While Constellation is not acquiring any AI companies, the company has a large market to tap that can help it grow for several decades.
Investing tip
You may find it worthwhile to focus on Constellation’s CAGR to see if it can maintain the 31% CAGR. Even if the growth rate slows to a 20% CAGR, an $8,000 annual investment can help you become a millionaire in 16 years. You need to invest regularly and stay invested for the long term for better returns.
