Latest news with #ConstellationSoftware
Globe and Mail
2 days ago
- Business
- Globe and Mail
It's time to take some profits in this high-flying Canadian tech stock
It has been a mediocre year for Canadian tech stocks. The S&P/TSX Information Technology index is ahead only 8.31 per cent year to date, less than the TSX Composite. Our biggest tech company, Shopify (SHOP-T), is doing somewhat better, with a gain of about 14 per cent so far in 2025. But that's well off the pace of last year's 48 per cent gain. Constellation Software (CSU-T) is up about 12 per cent year-to-date, also well short of its pace last year when it gained 35 per cent. Another 2024 high-flyer, Descartes Systems (DSG-T), which specializes in providing solutions for import/export businesses, is down almost 12 per cent as global trade slows in the face of Donald Trump's tariff blitz. There is one major exception to these disappointing results. Shares in Celestica (CLS-T) continue their strong uptrend, now in its third year. The stock had traded in the $5 to $15 range from 2005 to the spring of 2023. Then it suddenly took off, posting gains of 154 per cent in 2023 and 242 per cent in 2024. So far this year, it's up about 66 per cent. I added Celestica to my Internet Wealth Builder recommended list in November 2023 at $38.46. At that point, the p/e ratio was a very reasonable 16.72. The shares closed Friday at $219.79, up 471 per cent from our original recommendation. The p/e is now at 44.86, which is high but not outlandish for a tech stock (Nvidia is trading at 55 times earnings). Here's the latest update on Celestica. Celestica (TSX, NYSE: CLS) Originally recommended on Nov. 20/23 at C$38.46, US$28.05. Closed Friday at C$219.79, US$160.12. Background: Toronto-based Celestica was originally part of IBM. In 1996, it was sold to Onyx Corp. It began trading publicly in 1998 with the sale of 20.6 million shares at US$17.50. The company employs 26,000 people. Celestica has two operating segments: Advanced Technology Solutions (ATS) and Connectivity & Cloud Solutions (CCS). The ATS segment consists of its Aerospace and Defense, Industrial, HealthTech, and Capital Equipment businesses. The CCS segment consists of the company's Communications and Enterprise (servers and storage) end markets. Performance: The share price took a dive in January and plunged again in April in the wake of the 'Liberation Day' tariff announcements. However, it recovered quickly and recently hit a new high of $224.36. Recent developments: First quarter results continued to show strong growth in revenue and earnings. Revenue for the three months to March 31 was $2.65 billion, up 20 per cent from the same period in 2024. Adjusted earnings per share came in at $1.20 compared to $0.83 the year before. Note that the company reports in U.S. dollars. CEO Rob Mionis said both figures surpassed the upper end of the company's guidance range. 'This strong performance was further highlighted by our highest ever adjusted operating margin of 7.1 per cent,' he added. The first quarter results and a strengthening demand have resulted in new guidance for the full 2025 fiscal year. Celestica now expects revenue to reach $10.85 billion, an increase from the prior forecast of $10.7 billion. Adjusted earnings per share are expected to be $5.00, up from the previous guidance of $4.75. Second quarter results will be released on July 29. Dividend and buybacks: The stock does not pay a dividend, but the company spent $75 million in the quarter to buy back 600,000 shares. Outlook: The strong first quarter results and the improved revenue and profit guidance are encouraging. Conclusion: I've advised our readers to take half profits on the stock. New investors may want to watch for dips, preferably below $210, to take an initial position. Gordon Pape is editor and publisher of the Internet Wealth Builder and Income Investor newsletters.
Yahoo
2 days ago
- Business
- Yahoo
Acquisition Engine vs Valuation Ceiling: Constellation's Challenge
Introduction Constellation Software Inc. is a Canadian technology conglomerate that focuses on acquiring and operating vertical market software (VMS) companies. Founded in 1995 by Mark Leonard, the company has effectively created a decentralized empire of hundreds of unique software companies that are serving different sectors such as healthcare, education, construction, and government services. Constellation's acquisition-oriented plan is essentially different and mainly on the acquisition of profitable, market-leading VMS businesses which have regular earnings and have high customer switching costs. It functions as a decentralized entity, which essentially allows acquired businesses to operate independently, but at the same time they benefit from shared resources and best practices. Constellation, which brings in over $6 billion a year, has rewarded shareholders immeasurable returns through careful capital investments, consistent acquisition procedures, and the seamless execution of operational excellence throughout its versatile suite of critical software applications. Warning! GuruFocus has detected 7 Warning Signs with CNSWF. Valuation Multiples Looking at Constellation Software (CNSW) through the lens of this valuation context conjures up a very dramatic picture of a firm that seems to be much more disciplined in the comparison with its software relatives, even though its multiples are still more than those that one would call fantasized just a decade before. Constellation's 3.52x PEG ratio is the most reasonable in this peer group, which is indicative of the market's recognition of a fair growth-valuation relationship compared to ADSK at 47.23x or CDNS at 28.81x. This metric indicates that the investors are not paying a huge premium for Constellation's growth prospects which fits its philosophy of creating returns through operational improvements and capital allocation as opposed to relying on multiple expansion. The 40.41x TTM EV/EBITDA for Constellation, though it is high in absolute terms, looks almost cautious when viewed against WDAY's 61x or SNPS's 47x. This partial self-restraint is likely to correspond to the special nature of Constellation's business model. Unlike pure-play SaaS companies that must invest heavily in sales and marketing to acquire customers, Constellation's decentralized approach allows for acquired companies to keep their client relationships while benefiting from better capital allocation and operational practices. This model generates more predictable cash flows with lower reinvestment requirements. The 32.57x Price-to-Cash flow ratio is particularly noteworthy in light of the fact that Constellation is devoted to producing free cash flow and being capital efficient. This multiple, though it stands alone as high, may indicate that the market is confident in management's ability to invest money in a gainful way through acquisitions. Constellation has been consistent in demonstrating its ability to acquire companies at good multiples and improve their cash flow through operation improvements, which makes the current multiple more justifiable than the similar ratios for firms that are reliant on organic growth. The outstanding thing about the valuation of Constellation is its representation of the evolution of the market in terms of understanding the company's business model. In the earlier stages of Constellation, the investors often used the traditional software multiples to value the company, without fully grasping the impact of disciplined capital allocation compounding. The present valuation implies that the market acknowledges the company as operating an entirely distinct model from where the returns arise from the expertise of acquisition either than product innovation or expansion of the market. Decentralized Acquisition Engine and Due Diligence Strategy Constellation's decentralized acquisition engine forms the core of its technical infrastructure. This is the part that deals with thousands of potential acquisitions every year by a highly systematized evaluation framework. The company relies on the use of state-of-the-art financial modeling algorithms and valuation methodologies that are tailored especially for the vertical market software business. This technical solution allows for swift evaluation of target companies on various criteria such as the quality of recurring revenue, customer concentration metrics, competitive positioning, and levels of technical debt. The due diligence framework integrates automated screening processes that eliminate potential acquisitions per pre-defined criteria such as the minimum revenue thresholds, customer retention rates, and market characteristics. The state-of-the-art analytical tools that are available measure software architecture quality, codebase maintainability, and technical scalability potential. This methodical approach gives Constellation the opportunity to maintain acquisition speed while ensuring that quality standards are consistently upheld across its expanding portfolio. Utilizing machine learning algorithms historical acquisition performance data is analyzed for the purpose of improving the target identification and valuation accuracy. The platform iteratively enhances its predictive capabilities by establishing the correlation between post-acquisition performance metrics and pre-acquisition company characteristics, leading to a more precise decision-making process on future investments. Vertical Market Software Focus and Network Effects Constellation's vertical market software feature is a powerful technical weapon that is achieved through domain specialization and network effects. VMS solutions not only offer the technicalities of particular industry workflow, regulatory mandates, and operational processes but also add to the customer stickiness and the so-called high switching costs that they create. The company's technical teams head on develop a concentrated subject matter expertise across areas such as healthcare, education, construction, agriculture, and government services. The cross-introduction of technological solutions in related vertical markets enables Constellation to reap the benefits from the common functionalities and architectural patterns. The introduction of shared development frameworks, security protocols, and integration standards means that development costs will be reduced and the time for rolling out new features will be shorter across the portfolio of companies. The technical standardization brought about by this shared arrangement causes the creation of a scale that will increase the operational efficiency and profit margins. The network effects are apparent especially in the adjacent market segments that the company is targeting where Constellation can use the existing customer relationships and technical infrastructure to further increase its market presence. Customer data analytics compile a list of cross-selling opportunities and provide the main points for product development across the portfolio. Operational Excellence via Systematic Management Systems Constellation's technical improvement and growth are mostly attached to operational management systems that have been standardized and as such, they guarantee that the performance level will be consistent across the diverse units. The company sticks to one standard for financial reports, customer success metrics, and operational key performance indicators (KPIs). This allows centralized control and also the optimization of hundreds of subsidiary companies. The business intelligence platforms that have been developed are advanced enough to give performance data accordingly across all companies in the portfolio, and as a result, they give real-time tracking of revenue changes, customer health metrics, and operational efficiency indicators. The introduced alerting systems detect whenever there are some declines in performance and these require the attention of the management, therefore, the action is taken before the profit performance is affected. The standardization also covers the customer relationship management (CRM) systems, accounting software, and operating procedures creating the appearances of uniformity, all the while upholding the entrepreneurial culture of acquired companies. This balanced approach, which entails both centralized monitoring and the possibility of independent operation, has been the technical achievement that makes scalable growth a reality without creating bureaucratic burden. Competition For the most part, in the vertical market software sector, companies such as Constellation primarily compete with serial acquirers who are also acquiring primary market software assets. Firms like Roper Technologies, Danaher Corporation, and Addtech AB use the method of acquiring companies as a main strategy. This causes competitive pressure to increase substantially for quality targets and creates the valuation inflation issue in the VMS sector. In addition, some private equity firms like Vista Equity Partners, Thoma Bravo, and Francisco Partners not only represent the aforementioned competition but have also significant capital resources and knowledge in software acquisition. The technical portion of the challenge appears from the auction dynamics where there are multiple sophisticated purchasers to buy only a few high-quality assets. Hence, it becomes the need for advanced valuation modeling and rapid decision-making capabilities to stay in competitive alignment. The proprietary deal sourcing algorithms which are utilized by Constellation are the key reason that the enterprise's competitive edge prevails. Such algorithms add value by identifying off-market opportunities before the competitive auction processes commence. The decentralized acquisition model, which is being implemented by Constellation, has several advantages over the centralized ones. In a distributed network system of acquisition professionals being the company staff and who have the power to make the decisions and vertical market expertise, decisions are made faster and as well as the evaluation is more accurate than in a centralized model. Thus, this structural opportunity allows Constellation to match the performance of bigger-sized competitors which have better capital resources but lack operational agility. With the systematic development of relationships with business brokers, investment bankers, and software entrepreneurs, the company becomes a moat that is not easily penetrated due to the preferential deal flow it gets. Sophisticated Customer Relationship Management (CRM) systems monitor several thousands of possible acquisition targets and build continuous relationships which result in the exclusive deal opportunities that are not available to competitors relying solely on intermediated processes. Competition from VMS platforms and venture-backed startups increases pressure on the modernization of technology within the portfolio companies under the umbrella of Constellation. These modern SaaS platforms, cloud-native solutions, and venture-backed startups which are targeting the vertical markets of Constellation-backed portfolio companies are their main rivals. These types of firm competitors have frequently the upper hand since they employ better technological platforms, more appealing user interfaces, and greater integration capacities which counterattack the older, VMS products that were developed on the technical base. Constellation takes on the challenge of the technology sector by implementing modernization initiatives that are well-coordinated throughout the entire portfolio. The legacy cloud migration framework that they will share facilitates the transition for portfolio firms to the state-of-the-art infrastructure while also achieving cost savings through economies of scale. This hardware is developed by the company's technical teams who develop standardized API frameworks, microservices architectures, and integration platforms that enable legacy systems to interface with modern technology stacks. DevOps features that are advanced and without barriers have the potential to alter the way feature development cycles work for all the portfolio businesses leading to a quicker competitive response to new startups. Providing the same development resources and technical expertise will enable the smaller VMS companies to acquire skills that normally only the rich firms have. This occurs after the leveling of the competitive playing field. Constellation Company makes its approach to the management of technical debt more strategic, which is a strong competitive force. The company makes systematic checks on code quality, and embraces including but not limited to a refractored code and the architectural improvement to assure the portfolio companies maintain competitive technical capabilities. Also, the above-mentioned actions do not only help in preserving domain expertise and customer relationships that represent core competitive advantages. Technology Disruption and Obsolescence Risks The portfolio companies of Constellation work in areas that are vertical markets more and more vulnerable to the technology disruptions of cloud-native solutions, artificial intelligence applications, and the evolution of software architectures. Old-fashioned VMS solutions that are built on outdated technology stacks might find it hard to compete as their customers will choose to go for the modern solutions which not only provide better user experiences but also offer good integration capabilities. The rapid development of technology is the source of risks where companies in the portfolio do not invest enough in modernization programs to be in a competitive position. The capital allocation preferences of Constellation may not be adequate to fulfill the need for technology refresher programs in all the companies in the portfolio, which might lead to market share loss in key areas. Cybersecurity issues are still going higher as the portfolio companies are pursuable targets of ransomware attacks and data breaches. The decentralized nature of Constellation's different operations results in various attack vectors, and the different security mature levels of the various portfolio companies can, as a result, create vulnerabilities that can totally affect customer confidence and also compliance with the law. Cloud migration risks emerge as enterprises go from on-site deployment to cloud architecture. Technical issues, client resistance, and integration challenges could disrupt service delivery while requiring a huge amount of investment in infrastructure and skill development. Regulatory and Compliance Risk Exposure Constellation's global operations and diverse vertical market exposure not only create substantial regulatory risk across multiple jurisdictions and industry segments but also impose global regulatory risk. Changes in data protection regulations, compliance requirements relevant to specific industries, or restrictions on cross-border transactions may entail a significant capital infusion in the form of compliance infrastructure while possibly interrupting business operations. The company's strategy of acquisitions may be adversely affected by the changing antitrust regulations and the enforcement of the competition policy. The increased scrutiny of the serial acquisition strategies might restrict the deal-making capability or they may require the divestitures that might disrupt the operational synergies and consequently the strategic positioning. Vertical market regulations in sectors such as healthcare, financial services, and government contracting form the ongoing compliance obligations that require specialized expertise and hence require substantial investment. Immediately, the regulatory changes could affect market access or might require costly modifications of systems in the affected portfolio companies. The variations in international tax policies and the transfer pricing rules entail risks to Constellation's international operating structure and tax optimization strategies. Costs associated with compliance and the restructuring requirements could in turn affect profitability while also constraining the operational flexibility in the various markets. Valuation As seen in the chart, Constellation has had an incredible success in the past four years by continuously outpacing the intrinsic value expectations. The stock has for a long time been traded at a price that is above the fair value line (the black dashed line), which indicates that the market sees the value creation that the traditional valuation models may not fully consider. This premium which continues to be persistent is an indication that the investors actually see and understand the advantages of Constellation's particular business model and its superior execution abilities. The expanding valuation bands (+30% to -30% range) represent the increasing market's acknowledgement of Constellation's growth potential and the inherent challenge in valuing a complex, decentralized acquisition platform. The company's organic capital allocation strategy and solid returns on invested capital allow the company to justify premium ratings relative to traditional software businesses. The upward slope of both fair value estimations and the actual stock performance is the validation of Constellation's decision to invest in only those acquisitions that are disciplined and in operational excellence thus compounding returns. The existing state of being "overvalued" which is about 14% seems small compared to the long-term company's success in outpacing their growth targets and also it is hard to find the real value of a platform which is constantly adding market with the use of promising agreements. Guru Torray's huge investment of $8.1 million (2,571 shares, 1.21% of the portfolio) is a sign that the firm fully believes in Constellation's long-term performance. However, the 1.49% recent drop (-39 shares) and the timing of Q1 2021 implies that the profit-taking behavior rather than the fundamental concern was the reason behind them. With an average price basis of $1,341.28, they would have achieved exceptional returns of around 170% at the current levels of prices, which also supports Constellation's successful value creation during the last four years. This may actually be a rebalancing of the portfolio rather than a lack of confidence. Kirtland Hills' minor but expanding shareholding position ($1.3 million, 382 shares, 0.78% of portfolio) reveals a different story. The 0.53% climb (+2 shares) and the average value which is much higher at $2,682.21 from Q1 2024 is an evidence of the recent conviction in the potential of Constellation despite the price being high. This new institutional player reflects the ongoing view of Constellation's competitive edge even when prices are elevated Recommendation Constellation's vertical market software leverages network effects and domain specialization to provide a potent technical tool. In addition to improving customer loyalty and lowering switching costs, it offers solutions for particular industry workflows, legal requirements, and operational procedures. The technical teams of the organization are experts in fields such as government services, construction, healthcare, education, and agriculture. This article first appeared on GuruFocus.
Yahoo
15-07-2025
- Business
- Yahoo
Best Stock to Buy Right Now: Shopify vs. Constellation Software?
Written by Kay Ng at The Motley Fool Canada If you're searching for the best Canadian tech stock to buy right now, Shopify (TSX:SHOP) and Constellation Software (TSX:CSU) are probably at the top of your watchlist. Both companies have trounced the broader Canadian market over the past three years, but which one offers a better opportunity today? Let's compare them side by side. Over the past three years, Shopify turned a $1,000 investment into $3,678 — an extraordinary compound annual growth rate (CAGR) of 54%. Constellation Software was also amazing, growing that same investment to $2,611, for a 38% CAGR. By contrast, a comparable investment in a Canadian stock market exchange-traded fund (ETF) would have grown to just $1,557, with an annualized return of 16%. Both stocks have been exceptional performers, but the paths they've taken are very different. Shopify has become a global e-commerce powerhouse, helping millions of merchants in over 175 countries build and scale their online and offline businesses. Its platform handles everything from storefront design and payments to fulfillment and marketing — all powered by increasingly advanced artificial intelligence (AI) tools. In fact, Shopify is now leading the charge in AI-driven commerce. It recently launched an AI store builder that lets users create entire storefronts using text prompts. Its enhanced Sidekick assistant uses conversational AI to help merchants analyze trends, manage operations, and personalize customer experiences — all in real time. Financially, Shopify has been growing quickly. Over the past three years, revenue rose 24.4% per year to US$8.9 billion, while operating income surged nearly 59% annually to US$1.1 billion. However, net income declined 31% to US$2 billion, and earnings per share (EPS) dropped 32% to US$1.55. Despite those earnings challenges, Shopify maintains a clean balance sheet with very little debt. Still, risks remain. Its customer base is mostly small- and mid-sized businesses (SMBs), which are sensitive to economic slowdowns. Plus, competition is fierce. Amazon, Adobe, BigCommerce, and other AI-native platforms are all fighting for market share. Constellation Software operates a completely different model. It acquires and holds vertical market software businesses — specialized companies that serve industries like healthcare, utilities, education, and government. Each acquisition remains independently operated, and this decentralized structure has earned Constellation comparisons to 'tech's Berkshire Hathaway' by The Economist. The company's growth is driven by constant acquisitions, and its track record is stunning. For example, over the past three years, revenue rose 25.4% to $10.4 billion, while net income more than doubled, growing 33% annually to $731 million. EPS has followed a similar trajectory. Gross profit margins remain strong, and the company has an investment-grade BBB credit rating from S&P. However, Constellation isn't without risk. Its business model hinges on finding and integrating new acquisitions. It also carries a long-term debt-to-capital ratio of 49%. And with a share price near $4,959 and a forward price-to-earnings (P/E) ratio of 78, the stock is priced for perfection. Both Shopify and Constellation Software are elite Canadian tech companies with impressive long-term records. Shopify offers rapid innovation and e-commerce exposure, but comes with higher volatility and more competition. Constellation, however, delivers steady returns through disciplined acquisitions and consistent profitability. According to analysts, Constellation Software offers a better margin of safety right now — especially given its more predictable earnings and proven acquisition strategy. Bottom line: If you're choosing just one, Constellation Software is likely a better stock to buy today. The post Best Stock to Buy Right Now: Shopify vs. Constellation Software? appeared first on The Motley Fool Canada. Before you buy stock in Constellation Software, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Constellation Software wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $24,927.94!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 30 percentage points since 2013*. See the Top Stocks * Returns as of 6/23/25 More reading 10 Stocks Every Canadian Should Own in 2025 [PREMIUM PICKS] Market Volatility Toolkit A Commonsense Cash Back Credit Card We Love John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Fool contributor Kay Ng has positions in Amazon. The Motley Fool has positions in and recommends Shopify. The Motley Fool recommends Adobe, Amazon, Berkshire Hathaway, and Constellation Software. The Motley Fool has a disclosure policy. 2025
Yahoo
12-07-2025
- Business
- Yahoo
1 AI Stock Up 11% to Own in a TFSA for Long-Term Growth
Written by Amy Legate-Wolfe at The Motley Fool Canada When it comes to investing in artificial intelligence (AI) for the long term, it's easy to get caught up in the hype. Flashy start-ups and soaring valuations can make it tempting to bet big on the next breakthrough. But in a Tax-Free Savings Account (TFSA), where compounding over decades matters more than chasing momentum, I'd go with something a little different. I'd choose Constellation Software (TSX:CSU), a Canadian tech powerhouse that has not only stood the test of time but continues to grow through a methodical and profitable approach. If I could only own one AI stock in a TFSA, this would be it. Here's why. Constellation isn't the kind of company that grabs headlines. It's not building robots or developing large language models. Instead, it acquires and operates vertical market software companies that serve niche industries, from healthcare to utilities to municipal governments. These businesses often have loyal customers, stable recurring revenue, and strong pricing power. Over time, Constellation has acquired hundreds of these firms, knitting together a global empire of reliable cash flows. That acquisition model is the secret sauce. In its most recent quarterly earnings report for Q1 2025, Constellation reported revenue of US$2.6 million, up 13% from the same period in 2024. Net income came in at US$115 million, or US$5.44 per diluted share, compared to US$105 million or US$4.95 a year earlier. Operating cash flow reached US$827 million, and free cash flow available to shareholders hit US$510 million. That kind of financial strength is rare in tech, especially among companies with a hand in AI. Where AI comes into play is subtle, but important. Constellation's companies increasingly incorporate AI and automation into the software they offer. It might be predictive analytics for logistics, intelligent scheduling for healthcare, or fraud detection for financial services. These aren't moonshots, but practical tools that improve efficiency and make customers stickier. AI in this context becomes a value-add, not a distraction. The company also completed aggregate cash acquisitions of US$94 million (US$133 million including deferred payments) during the quarter and invested US$174 million to acquire 9.99% of Asseco Poland. That speaks to the size of its war chest and its ongoing commitment to expand. Management has always been disciplined in how it spends. It avoids bidding wars and prefers to buy companies with long-term potential, even if it means slower growth on paper. This conservative strategy keeps returns strong and risks in check. Of course, no stock is perfect. The share price, sitting near $5,000, isn't exactly approachable for everyone. It trades at a premium valuation, with a high price-to-earnings (P/E) ratio. Some investors may hesitate, thinking the growth has already been priced in. And it's true that organic growth remains in the low single digits, with acquisitions doing most of the heavy lifting. But that's also why it works, the model is repeatable, and management hasn't strayed from what it does best. The dividend is modest at US$1.00 per share quarterly, but that's not the draw. This is a long-term growth story built on free cash flow and compounding. The dividend is more of a bonus, not the main event. In a TFSA, where income isn't taxed and gains build up quietly over years, Constellation's steady growth becomes even more powerful. There are sexier AI stocks out there, no doubt. But many come with hype, losses, and hope. Constellation comes with revenue, profit and a 30-year track record of smart acquisitions. It doesn't try to reinvent the wheel; it just buys the best wheels and makes them better. For those looking to hold a single AI-related stock in a TFSA for decades, it's hard to beat Constellation Software. It's not just a tech stock. It's a disciplined compounder with exposure to some of the most important technological trends, including AI, while remaining grounded in fundamentals. It might not be flashy, but it works. The post 1 AI Stock Up 11% to Own in a TFSA for Long-Term Growth appeared first on The Motley Fool Canada. Before you buy stock in Constellation Software, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Constellation Software wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $24,927.94!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 30 percentage points since 2013*. See the Top Stocks * Returns as of 6/23/25 More reading 10 Stocks Every Canadian Should Own in 2025 [PREMIUM PICKS] Market Volatility Toolkit A Commonsense Cash Back Credit Card We Love Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy. 2025 Error in retrieving data Sign in to access your portfolio Error in retrieving data Error in retrieving data Error in retrieving data Error in retrieving data
Yahoo
08-07-2025
- Business
- Yahoo
Why This Tech Stock Could Be the Next Shopify
Written by Amy Legate-Wolfe at The Motley Fool Canada Shopify (TSX:SHOP) is often the gold standard when it comes to Canadian tech success. It went from a little-known e-commerce company to one of the biggest stories on the TSX. So whenever a new name comes up with similar growth potential, it's worth paying attention. That's why (TSXV:TOI) is starting to get noticed. It doesn't have the flash of Shopify, but it has been quietly building something impressive. And for long-term investors, it could be one of the most exciting tech stocks on the market today. Topicus is a software company that focuses on vertical markets. That means it develops and acquires software tailored to specific industries like healthcare, education, and government. It's not trying to be everything to everyone. Instead, it wants to dominate smaller segments by offering exactly what those users need. This model allows it to grow quickly and maintain sticky customer relationships, since these tools are often deeply embedded into a company's day-to-day operations. The tech stock was spun out of Constellation Software in early 2021, and it has inherited some of the same strengths. Like its parent, Topicus is all about acquisition-led growth. It buys up smaller software firms, integrates them into its structure, and uses that foundation to continue growing. This buy-and-build strategy has worked well for Constellation, and Topicus is following a similar path. As of its latest report for the first quarter of 2025, Topicus posted revenue of €506 million, which is about $556 million in Canadian dollars. That was up from €451 million the year before. Net income came in at $37.4 million, with earnings per share (EPS) of $0.47. The tech stock continues to reinvest in operations and acquisitions, which can pressure short-term earnings but support long-term value creation. What makes Topicus exciting is its consistency. Over the past five years, it has grown earnings by 46% per year and revenues by 22% annually. Its return on equity sits at a strong 22.4%, and its profit margin is around 7.3%. Those are healthy numbers for a company in growth mode. These show it isn't just burning cash to expand. It's building a sustainable business with real profits and strong cash flow. The tech stock trades at a high valuation at about 93 times trailing earnings. That might scare off some investors, but it reflects the market's belief in Topicus' growth potential. Its market cap has now reached $22.7 billion, which is impressive for a tech stock still listed on the TSX Venture Exchange. There are risks, of course. The tech stock is highly acquisitive, so it depends on finding good businesses to buy at reasonable prices. Integration risk is real. If one of its acquisitions underperforms or doesn't mesh well with the rest of the business, it could drag down results. Macroeconomic issues in Europe, where many of its customers are located, could also impact demand. Still, Topicus has shown it can handle these challenges. Its focus on vertical markets gives it a defensive edge. Even during tough times, many of its customers can't easily switch to another provider. The software is too deeply ingrained in their daily operations. That helps keep revenue steady and allows Topicus to continue scaling over time. It might not become the next Shopify in terms of market cap, but Topicus has a real chance to become a dominant force in its own space. It's already proving that growth and profitability can go hand in hand. For investors looking for a Canadian tech stock with a long runway ahead, Topicus is a name to watch. And maybe, just maybe, it's the next big thing. The post Why This Tech Stock Could Be the Next Shopify appeared first on The Motley Fool Canada. Before you buy stock in Constellation Software, consider this: The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Constellation Software wasn't one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years. Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the 'eBay of Latin America' at the time of our recommendation, you'd have $24,927.94!* Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 30 percentage points since 2013*. See the Top Stocks * Returns as of 6/23/25 More reading Made in Canada: 5 Homegrown Stocks Ready for the 'Buy Local' Revolution [PREMIUM PICKS] Market Volatility Toolkit Best Canadian Stocks to Buy in 2025 Beginner Investors: 4 Top Canadian Stocks to Buy for 2025 5 Years From Now, You'll Probably Wish You Grabbed These Stocks Subscribe to Motley Fool Canada on YouTube Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Shopify and The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy. 2025 Effettua l'accesso per consultare il tuo portafoglio
