Constellation Software (TSX: CSU) shares slumped this week after long-time founder and CEO Mark Leonard resigned over health concerns. The tech titan left investors fearful about what might be happening next, and with share prices still in the four-digit range, many are questioning it as a long-term investment.
That being said, not only is CSU still strong given its solid moat as a niche-software acquiring company, but there are other spin-offs that have proven we don’t necessarily need Mark Leonard anymore. Therefore, not only can we let him focus on his health, but we can also continue to support those companies — ones that offer a far better price.
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LMN
The first spin-off from CSU to consider is Lumine Group (TSXV: LMN), which focuses on acquiring communications and media software companies. Once acquired, the company does the same as CSU, allowing businesses to maintain autonomy while receiving capital support. And that support has been strong, and then some.
During the most recent earnings, Lumine reported revenue was up 13%, with operating income up 71%. Its net income rebounded from a loss last year to income of US$23.6 million. Furthermore, cash flow from operations (CFO) materially improved, up 705% to US$78.4 million in the second quarter. Not only were there improvements, but the balance sheet and leverage remain well supported. Lumine holds just 34% debt to equity and positive cash balances.
With so much improvement and a solid balance sheet, LMN is a strong tech stock for investors to consider. In fact, it looks downright undervalued at these levels. Therefore, it could certainly be a stock to buy as CSU struggles to regain its share price.
TOI
Next up, we have Topicus.com (TSXV: TOI), which is more directly like CSU, though with one major difference: it operates in Europe. The tech stock builds and acquires software in niche markets like education, healthcare, social services, the public sector and more. It operates especially in the Netherlands, integrating these software companies into its platform.
And again, this tech stock has been showing strength. During its second-quarter earnings, revenue climbed 20% with net income up 54% to €41.5 million. This was clearly positive earnings momentum that came alongside continued acquisition growth. Granted, its CFO was negative from seasonal billing; however, its six-month CFO rose to €256.5 million. Therefore, there were strong mid-year cash conversions to help support the latest quarter.
Overall, TOI looks far cheaper than CSU, but with the same strength and near-term margin expansion. Basically, these are tech stocks doing exactly what CSU already does, but at a cheaper price for investors. And there’s so much evidence TOI is doing it well, with acquisitions driving 20% growth in revenue.
Bottom line
While CSU is the headline stock, these tech stocks are doing just as well, if not better. And all while trading at a share price that offers far more value than the four-digit investment. So, while CSU is certainly still a high-quality platform with scale and a long track record, it does come with a price.
