Opinions
Peter Hodson
Constellation Software Inc.
CSU-T
STRONG BUY
Jul 29, 2014
Stock price when the opinion was issued
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Really big move, a leader to the upside. Now showing signs of stalling and breaking down. Reaffirms his view that we're in a corrective phase. Moved below the 200-day MA, not a great sign. Doesn't mind nibbling here, but expects a better opportunity in the next 1-2 months as we get through September and even into October.
He'd definitely be looking to add around $4250, the support level of the tariff tantrum back in April.
Very aggressive M&A strategy. Some of the best capital allocators in the business. Optimizes costs in acquisitions to increase margins, but doesn't necessarily invest in growth. So organic revenue has struggled, and we need to analyze how long this will last. Vertical synergy strategy works well.
Key metric to look for is reacceleration of organic revenue, rather than just M&A revenue.
Utmost confidence in management. Massive compounding shareholder value over time. Recent results were good. Behind the pace on M&A goal for the year. Could be getting lost amidst AI-driven stories. Vertical markets mean its organic growth rate is low.
He continues to be long and strong, not concerned by recent pullback.
Loves the business model. Management is phenomenal. Concern is valuation at high 20s free cashflow multiple, which implies earnings yield to shareholder of 3% and change. Based on its size, how many more acquisitions can it make to move the needle? As a value manager, hard for him to buy.
Huge fan. The downturn is a blip and a major buying opportunity. The market misperceives that AI will hurt vertical market software companies. No, it's the complete opposite whereby these companies will benefit from AI a lot. You can't displace these companies easily. We will see serious margin expansion and an uptick in innovation.
This has been a great stock performer. Even though revenue has gone from about $200 million to billions, the number of shares outstanding has been unchanged for 10 years. When you can grow without diluting your shareholders, it is brilliant. CEO owns $300-$400 million in stock. Now starting to do larger acquisitions. They have the ability to do third-party financing, where other people take the risk and they share in the profits. This is one of those great companies that you buy and 5 years later you will be happy.