Valued at a market cap of $105 billion, Constellation Software (TSX: CSU) has delivered market-beating returns to long-term shareholders. The TSX tech stock went public in 2006 and has since returned more than 37,000% to investors after accounting for dividend reinvestments.
However, as past returns don’t matter much to current and future investors, let’s see if you should own CSU stock in May 2025.
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Is Constellation Software stock a good buy right now?
Constellation Software continues to grow at a steady pace. In the fourth quarter (Q4) of 2024, it reported revenue of $2.7 billion, an increase of 16% year over year. Its full-year 2024 sales rose by 20% to $10 billion. These numbers stand out at a time when several tech firms are struggling to maintain momentum.
CSU’s time-tested approach of acquiring mission-critical vertical market software businesses remains its secret sauce. While the Canadian tech giant has reported modest organic growth in 2024, its acquisition strategy continues to drive top-line growth.
Constellation Software emphasized that cash flow from operations now exceeds what they’re spending on new purchases plus dividends. The company ended 2024 with cash reserves of $1.98 billion, an increase of $696 million year over year. CSU has also revamped its credit facility, boosting the limit to $1.1 billion and shifting to an unsecured structure. This gives them plenty of flexibility for future deals.
Unlike the tech giants caught in AI and cloud computing crosswinds (we’ve seen Microsoft, Alphabet, and others wobble lately), Constellation’s focus on niche, mission-critical software has allowed it to generate stable cash flows across business cycles.
As software evolves with artificial intelligence (AI) advances and market shifts, Constellation’s approach of targeting specialized markets should help it navigate a challenging and dynamic macro environment.
What is the target price for the TSX tech stock?
A key driver of a company’s stock price is its ability to increase revenue and earnings over time. Constellation Software’s sales have risen from $1.83 billion in 2015 to $10 billion in 2024, indicating a compounded annual growth rate of over 20%. In this period, its adjusted earnings per share have risen from $17.5 per share to $79 per share.
In 2024, Constellation Software reported a free cash flow of $2.1 billion, up from $383 million in 2015. This growing cash flow base allows the company to target acquisitions, pay shareholders a dividend, and strengthen the balance sheet. Bay Street expects CSU’s free cash flow to surpass $2.9 billion in 2027, which indicates that CSU’s growth story is far from over.
Analysts tracking Constellation Software stock expect its sales to increase from $10 billion in 2024 to $21.9 billion in 2029. Comparatively, adjusted earnings per share are forecast to expand to $160 in 2029, up from $79 in 2024.
Today, the TSX stock trades at a forward price-to-earnings multiple of 52 times, much higher than its average multiple of 35 times. If CSU stock trades at 40 times forward earnings, it will be priced at $6,400 per share in early 2029, indicating an upside potential of 30% from current levels.
