CSU:CC - 3 Reasons to Buy Constellation Software (TSX:CSU) Stock Like There's No Tomorrow

2024-07-05 21:45:00 ET

Stock market investing in Canada offers investors many possible strategies for growing their wealth. Most new investors think investing in growth stocks rapidly increasing in value is the best approach. The problem with focusing on high-growth stocks is a higher degree of risk.

Investors with more experience know balancing growth stocks with boring but high-quality equity securities that offer stability is a good idea.

However, the TSX occasionally offers an opportunity for a stock to deliver faster-than-usual capital gains growth without the risk of typical high-growth stocks. Most mainstream tech stocks have delivered rapid growth but have fallen significantly due to the volatile economic environment in recent years. One Canadian tech stock stands apart from the rest of the industry: Constellation Software Inc. ( TSX:CSU ).

We’ll look at Constellation stock and discuss why it can be an excellent buy for growth-seeking investors even as it goes to new all-time highs.

Tech giant with a solid business model

Constellation Software is an $86 billion market capitalization Canadian tech stock that works differently than most high-growth tech stocks. The software firm is responsible for developing and customizing software solutions for public and private-sector entities. However, its approach to doing it is what sets Constellation apart from most other software companies.

Constellation Software specializes in acquiring, managing, and building up software companies across various business verticals.

Acting like a venture capitalist firm, Constellation acquires profitable companies, injecting more capital and offering its experience to fuel its success under the Constellation banner. Instead of acquiring newer companies, its focus on already successful businesses gives Constellation a level of stability most others do not have.

Solid growth over the years

Constellation Software was first listed on the Toronto Stock Exchange in 2006. Since its Initial Public Offering (IPO), its share prices are up by almost 22,000%. In the same period, the S&P/TSX Composite Index has grown by around 90%, reflecting how Constellation Software stock has outshined the broader market by a massive margin.

In less than two decades, Constellation Software stock has delivered the kind of growth that few other stocks can come close to. Besides over 20,000% returns through capital gains, Constellation Software is also one of the rare tech stocks that offer dividends to its shareholders.

With a solid business model supporting it, Constellation Software can continue to deliver substantial growth to its investors for years to come.

Strong financial performance

Constellation Software is a tech stock that might not offer growth as rapidly as Shopify did in its early days on the stock market, and it does not need to. Other tech stocks that saw share prices climb quickly were backed more by investor sentiment and excitement than anything else. However, Constellation Software has solid fundamentals to support its ever-rising share prices.

In its recent quarter, Constellation Software reported 23% year-over-year revenue growth, crossing the $2.3 billion mark. The company’s net income attributable to shareholders grew to $105 million, and earnings were up by 4.5% from the same quarter last year.

Foolish takeaway

As of this writing, Constellation Software stock trades for $4,043.02 per share, up by 46.9% in the last 12 months alone. As the company continues acquiring more small and mid-sized companies, there is plenty more room for additional top- and bottom-line growth ahead. Supported by a strong balance sheet, Constellation Software stock might be a bargain even after its recent rally.

The post 3 Reasons to Buy Constellation Software (TSX:CSU) Stock Like There’s No Tomorrow appeared first on The Motley Fool Canada .

Fool contributor Adam Othman has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy .

2024