Stockchase Opinions

Keith Richards Constellation Software Inc. CSU-T BUY Nov 25, 2024

Buy at $4450?

Now in an uptrend. Tends to make a new high, pull back to the trendline, and repeat. Previous rallies each lasted a few months. This rally is just getting started, and he'd think you're going to get a little more upside before you get the pause that refreshes. Unless you're into super-short-term trading, stay with this until it ends.

How do you know when it ends? When it breaks the last low and takes out the 200-day MA. Doesn't look as though that will happen for a while.

$4641.835

Stock price when the opinion was issued

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BUY
When stock makes a new high, bullish? Or wait for a pullback to put money to work?

Usually in technical analysis you buy the breakout, especially when the chart shows a staircase pattern. Rally, consolidation, rally, consolidation, and so on. Some people say wait for a retest, which is about $4400. Risk is that it doesn't retest and just keeps on going. It becomes a bit of a coin toss.

Technically, there's a very significant technical breakout underway. Highly ranked on an RSI basis.

DON'T BUY

The valuation is always high, that's the problem (88x trailing PE, 50x forward). CSU needs a lot of acquisitions, but it has rewarded shareholders. He prefers Open Text of CGI.

PARTIAL BUY

 A beautiful chart. Let it run. But next year, he expects a correction, 15-20%. However, you can nibble at this now to build a position.

HOLD

The chart is absolutely flowing, but don't buy it now. Don't write any calls, because the stock could take off. Try it at US$3,300 or $3,200 or $3,100. There's support at C$4,200, then $3,750--it shouldn't fall below this.

STRONG BUY

It is still growing by over 20% per year and trailing less than 20 X earnings. He is looking for a stock price 20 to 25% higher a year from now. It is getting international notice. Acquisitions are generally small and not big company changing ones. It is the best roll-up stock in Canada and one of the most attractive companies for new investors to buy. They don't do analyst calls.

BUY
Is $4,200 an entry point?

The 3-year chart shows an upward trend. The 1-year is also a good chart with support at $4,200. Importantly, the stock is bouncing off that support. Looks pretty good.

WAIT

Awesome compounder, strong uptrend. Only concern is that if we are, indeed, late cycle, infotech is going to be at risk. Don't put too much new $$ to work here. Wait for the bigger correction of a hefty 15-20%, likely later this year.

This name has a higher beta, and beta tells you how sensitive a stock is compared to the market.

DON'T BUY

Best software company in Canada. Growth by acquisition makes him pause, as things go well until that final acquisition hurts. Great job buying and integrating businesses. Growth being priced at an excessive premium. Solid growth but high, 40x multiple. 

BUY

He targets $4,900. It hasn't been hit like Shopify or Celestica, because CSU has so many horizontals. Microsoft has a software that is applied in many ways, but CSU is different. CSU applies their various software to specific industries, like a healthcare vertical/software. This diversification lowers volatility. Likes it.

TOP PICK

One of a kind. One of the best compounders in the world. Big misconception is that the total addressable market is not that big. Fear that can't deploy capital for the same rate of return going forward as it has in the past. He very much disagrees with that. 

The addressable market is huge. Of course with a larger acquisition, you can't expect the same 25-30% after-tax rates of return. But on a blended basis, can still compound at very high rates of return. Yield is 0.13%.

(Analysts’ price target is $5259.18)