Constellation Software Inc. (CSU.TO)

Specialty software company that buys niche companies in niche businesses.

15 times cash earnings growing at at least 35%. Best performing large cap stock in Canada over the last 5 years. Made an acquisition a week ago that will contribute 15% growth on their current base of earnings.

Been a tremendous story. Likes the management team. Growth through acquisition. Multiple is high but they have done a good job. Don’t sell here.

Fantastic company. Run very well making acquisitions of technology companies and rolling them in. Going to be a good stock for a long time. He has been waiting for an entry point for a long time. As they get bigger, they can make more and bigger acquisitions, accelerating their growth plans. Thinks they have a pretty decent runway for the next little while.

Hit a new five-year high. Volume was 72,000 that is normally 33,000. Trending higher. He would be careful as it is a thin trader. There are some money managers that favour this stock. Any bad news on earnings and there will be a rush for the exits and he wouldn’t want to be in the way. Very expensive and he feels there are better places to be.

Look at the chart. Another good year for the chart, 10 fold rise since ’09. 39% return on equity. RBC raised their target price.

Probably the smartest software guys in Canada, but smart from an acquisition standpoint. They are not focused on the growth side. Their whole thing is growth by acquisition. When a stock gets to be 14 or 15 times EBITDA he really looks for the Exit sign. He did on this one but was way too soon. Thinks it will always have a premier cachet to it. If it pulled back to $140, he would be looking to buy it.

Their business model seems to be fairly firmly entrenched. They don’t really vary from the typical type of software companies that they are involved in. Smart management. He has been getting numbers above $171 stocks but it doesn’t seem to matter. If you don’t own, you could do a little.

A good, long-term stock and it is getting better with time. They acquire more software companies allowing them to make even bigger acquisitions. They take all of that and then funnel the free cash flow down. Has been waiting for a good entry point. Not overly expensive.

Best capital allocator management in Canada. Thinks the stock will go to $250 in the next 12 months. Only trading at 12.5X earnings.

His model prices $148.96, a -4% or -5%. Would love to see some sort pullback.

Very acquisitive and there are concerns that acquisition targets could run out but these are very small companies that are tucked in. They retain management and continue to do well. Historically they have been extremely good. Three-year cash flow has grown quite well. Margins are good. ROE is extremely high. Sales growth is at the end of July was a 45%.

Have been doing a lot of acquisitions over the last several years. If they could not make an acquisition they would have to use their cash flow to raise the dividend. As the stock market goes down, business valuations also go down making it easier for them to make acquisitions.

Just reported Q4 earnings a couple of weeks ago. While the market was down 250 points, this stock hit a new all-time high. Thinks the stock goes way higher this year and that the analysts underestimate how big the earnings jump is going to be for 2013. Dividend yield of 3.22%.

They go around buying up software companies. He likes the business model. The stock is probably fully valued and there is a risk of a correction of 15-20% so he would be cautious.