Constellation software: a venture capital game?


Image source: Getty Images

Only a handful of stocks on the Toronto Stock Exchange posted growth similar to that of Constellation Software (TSX: CSU) since its initial public offering. Over the past 15 years, CSU stock has grown at a CAGR of around 37%. It has increased by about 43% over the past year.

These measurements suggest that this TSX stock is not slowing down at all. Indeed, investors who allocated $ 10,000 in CSU shares when it went public would now have a position of over $ 1 million today. These are serious gains.

Let’s take a look at another reason Constellation Software is a long-term growth stock that investors can consider right now.

Constellation: a fast growing corporate giant to finance startups

Most investors who have tried Constellation Software know the history of the company. It is a software conglomerate that has spent decades acquiring smaller companies. By including these companies in its portfolio, Constellation has been able to increase the return on equity of many of its major holdings. A home hitter, Constellation Software is one of the best companies to recognize untapped value.

So, it is perhaps not surprising to see Constellation enter the world of venture capital. In recent months, several companies, including Constellation, have announced plans to launch venture capital arms. The goal? Support early stage organizations with huge upside potential.

With early investment, Constellation paves the way for further additional investment or potential takeovers. This type of strategic change aligns well with the business model of the company. As a result, many investors may wonder, why has it taken so long?

Constellation recently announced a $ 200 million venture capital fund. The fund will be named VMS Ventures and will focus on companies with the potential to be stand-alone entities within the Constellation portfolio. These companies are those that may not benefit from the marketing, sales, or other synergistic aspects of value creation that Constellation typically relies on for its M&A strategy.

The VMS in the name of this fund stands for Vertical Market Software. These are companies that have untapped vertical markets, especially companies whose management teams own a significant portion of the business.

At the end of the line

I think this strategic decision from Constellation Software makes so much sense it’s not even funny. Like many who have watched Constellation for quite some time, I blame myself for not entering this stock earlier. It’s a company that has always demanded a premium – for good reason. However, each year Constellation performs incredibly well. This company is a giant and is positioned to accelerate its growth over time.

It’s one of the best Canadian tech stocks I have in mind right now. Investors looking for a proven long-term winner may also want to take a close look at this company.


About Author

Comments are closed.