Constellation Software (TSX:CSU) has long been a standout on the TSX. Consistently delivering impressive returns for shareholders. Known for its acquisition-driven growth strategy, the company has built an empire by purchasing small to mid-sized software companies and integrating them into its expansive portfolio. As we move through 2025, the question on many investors’ minds is whether Constellation can continue its winning streak or if headwinds will start to weigh on its performance.
The numbers
The company’s most recent earnings report for the third quarter of 2024 painted a mixed but overall positive picture. Revenue came in at $2.541 billion. Slightly below the expected $2.579 billion but still reflecting a healthy 19.5% year-over-year growth. Net income attributable to common shareholders was reported at $587 million, translating to diluted earnings per share (EPS) of $39.50. While quarterly earnings growth showed a decline of 27.8% year over year, much of that was attributed to increased costs related to its aggressive acquisition strategy and higher interest expenses.
Looking ahead, Constellation is set to report its fourth-quarter results on Mar. 7, 2025. Analysts are projecting revenue of approximately $3.92 billion, representing a significant 27.29% increase from the previous year. Earnings per share (EPS) are forecasted at $16.87, nearly doubling from the same quarter in 2024. This optimistic outlook reflects continued confidence in the company’s ability to generate revenue from its expanding portfolio of software businesses.
Valuation remains a topic of discussion for Constellation investors. CSU stock currently trades at a trailing price-to-earnings (P/E) ratio of 123.90 and a forward P/E of 35.84. While these figures suggest a premium valuation compared to the broader market, they also reflect the company’s consistent growth and profitability. The price-to-sales ratio of 7.51 and price-to-book ratio of 27.35 further highlight the market’s willingness to pay a premium for Constellation’s earnings power and future potential.
Still solid
From a financial health perspective, Constellation remains solid, though its debt levels are worth watching. CSU stock reported total debt of $4.51 billion, resulting in a debt-to-equity ratio of 143.91%. While this level of leverage is higher than some investors might prefer, it is largely tied to the company’s acquisition-heavy strategy. On the positive side, Constellation holds $2.08 billion in cash, providing ample liquidity to manage debt obligations and pursue further acquisitions.
CSU stock’s acquisition strategy continues to be the engine of its growth. In 2024 alone, Constellation acquired several niche software companies across various sectors, further expanding its reach. This strategy has proven effective, as newly acquired businesses contribute to recurring revenue streams and help drive long-term growth. However, the challenge lies in maintaining margins while integrating new acquisitions, especially as competition for attractive targets increases.
Looking forward, the outlook for Constellation Software in 2025 remains positive but not without risks. While CSU stock’s growth trajectory appears intact, its premium valuation, high debt levels, and reliance on acquisitions could become concerns, especially if economic conditions tighten or if interest rates remain elevated. Nevertheless, Constellation’s strong cash flow, disciplined acquisition strategy, and proven ability to integrate new businesses suggest it is well-positioned to navigate potential challenges.
Bottom line
Ultimately, Constellation Software remains a compelling investment for those seeking exposure to the software sector with a focus on growth. While CSU stock may not be a bargain at current prices, its consistent performance and future prospects make it hard to ignore. Investors already holding shares might find it worth continuing to hold, while new investors should consider whether they are comfortable with the current valuation before jumping in. As always, keeping an eye on the upcoming earnings report and any new acquisition announcements will be key to assessing CSU stock’s potential in the months ahead.
