Valued at a market cap of $69 billion, Constellation Software (TSX:CSU) is among the largest tech stocks in Canada. In the last 10 years, CSU stock has returned over 500% to shareholders. Despite these outsized returns, the large-cap tech stock is down almost 40% from all-time highs, allowing you to buy the dip.
Constellation Software acquires, builds, and manages vertical-market software businesses to develop mission-critical software solutions for public and private-sector markets. It operates in Canada, the United States, the United Kingdom, Europe, and internationally.
While CSU has delivered market-beating returns to long-term shareholders, let’s see if you should buy the Canadian growth stock right now.
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Is CSU stock a good buy?
Constellation Software continues to demonstrate resilience in its acquisition strategy despite facing headwinds in capital deployment during the first quarter of 2025.
The Canadian tech heavyweight has historically deployed over US$1 billion in equity annually, achieving high returns. However, in recent months, transaction activity has slowed, which might indicate a sluggish economic backdrop and timing issues.
Mark Leonard, CSU’s president, acknowledged that competition has intensified from peers and private equity firms. However, Constellation maintains its edge through robust capital allocation and a decentralized approach.
Constellation Software follows tens of thousands of acquisition prospects, though the quality of its funnel additions has declined compared to a decade ago. Today, potential acquisition targets primarily include horizontal businesses and hybrid software-hardware companies, which indicates a style drift.
CSU deployed capital across multiple large transactions recently, including Topicus’ investment in Polish software giant Asseco and Robin Van Poelje’s acquisition of Cipal in Belgium.
These deals showcase a willingness to pursue opportunities while maintaining disciplined hurdle rates. The company also remains comfortable with debt at subsidiary levels, viewing it as a tool to enhance returns.
CSU is taking a measured approach towards artificial intelligence investments. Mark Miller noted that AI development tools have yet to deliver significant productivity gains across the portfolio, even as businesses experiment with customer support applications.
Constellation Software views AI more as an enhancement tool than a disruptive threat, particularly for businesses with deep customer relationships and complex implementations.
Organic growth initiatives remain in focus as Perseus, an acquisition company, is testing new bonus structures that emphasize revenue expansion alongside profitability.
Management has stated that investment decisions remain business-specific as the leadership team favours organic growth in high-quality companies with a competitive moat. Moreover, CSU continues to prioritize acquisitions for mature legacy products.
Is CSU stock undervalued?
Analysts tracking Constellation Software stock forecast revenue to grow from US$10 billion in 2024 to US$15.8 billion in 2027, indicating an annual growth rate of 16%. In this period, earnings per share are forecast to increase from US$79 to US$140, representing an annual growth rate of 21%.
Today, CSU stock trades at a forward price-to-earnings multiple of 21.4 times, which is lower than its 10-year average of almost 29 times. If we assume a 25 times multiple, the tech stock should trade around US$3,500, indicating an upside potential of nearly 50% from current levels.
