Constellation Software Inc. (CSU.TO)

One of the best-run companies in NA. Solid. Trading ~15x forward PE, cheaper than ever. If you don't own it now, you probably never will. Because it makes acquisitions, those targets are now trading at lower valuations and so embedded returns should be higher.

For its customers, they click a button and the software does what they need it to do. They're not thinking about upgrading or changing what works. So AI is on the radar, but not an immediate threat.

Valuation always excessive for minimal organic growth and acquisitions that become harder to move the needle. AI fears, CEO left. Now trades at 12x operating cashflow. Strategy hasn't changed. 

Strong cash balance and free cashflow can now take advantage in acquiring software players that have been hurt. Private equity is a big competitor, but that space is facing concerns right now. So M&A should pick up dramatically. Yield is 0.20%.

If you've owned it for a long time, you're still in the money and so congratulations. Not a huge fan. Just a hodge-podge of companies with no real vertical integration. Valuation was extreme, and the melting story is a valuation check.

Question becomes whether it's worthwhile replacing a software offering with an AI solution? Possibly yes for large ones, and no for small. Remains to be seen. Valuation keeps him away.

The market is in full-blown panic about CSU, whether AI is disrupting and whether CSU will continue to buy companies at the same pace under the new CEO. They will provide clarity through a conference call with management and talk about AI implementation. Remember that the company can use AI within their own business to save costs or writing code more efficiently. They could upgrade a lot of their software with AI.

A great growth story over 20 years, but their long-serving CEO retired last year and shares declined. This is a show-me story. Also, it has been hit by AI fears. Trades at 10x EV to EBITDA, half its historic values. Hang on if you own it. Eventually, we will realize we still need software. There are worse places than CSU to put your money.

All blue-chip stocks have a gut check at some point in their history. Very cheap. Depends on whether roll-up strategy can continue in the AI world. CEO shuffles have caused panic.

On the metrics, his team thinks about 90% of software carnage is done. Levels now are good for at least a trade.

Pays a 0.23% dividend. It's a good company, but a bad stock. Is well-managed. For many years were doing a good job of vertical integrations which saw high valuations, just when the AI boom took off. Canada has few Canadian tech names, and now tech is selling off. They grow by M&A, which can be risky. Now might be an attractive entry point, but not for her.

All of the Top Picks today are being tarred with the same software brush, with very little differentiation of what they do and how they do it. For this name, it's all about its size.

It's a large-cap, doing over 1k acquisitions since its IPO roughly 20 years ago. Its small, niche clients have very little incentive to switch to a competing product, and there's no economic rationale to do so. Massive end-product diversity and massive client diversity. AI can actually be used to customize its products. Compelling valuation. Yield is 0.23%.

CSU appears to be nearing its low point. They believe investor sentiment has reached rock bottom, especially given the absence of any negative fundamental or company-specific developments (in fact, its acquisitions were favorable). However, one shouldn't read too much into a single trading session. CSU moved independently on Wednesday with an 8.5% surge, essentially capturing some of today's technology sector gains ahead of time. That said, the stock doesn't always follow sector trends due to nervous long-term holders sitting on substantial unrealized gains. Unlock Premium - Try 5i Free

It'll take 2 or 3 earnings to calm the jitters out there. Used to own; got out of the way when it went through $3500. Impossible to try to catch a falling knife like this. Getting brushed with the whole software vs. AI scare.

If you've held on this long, hold on. Put a stop under the most recent low, which is around $2150-2200. If it breaks through there, lighten up. It's actually bounced a bit. This might be the level it consolidates around.

A fantastic company. Is down 50% from its peak when it was pricey, but is now cheap enough to buy. Can't tell if this is the bottom. As a value investor, he is definitely watching this. Due to valuation, he doesn't own any software companies.

Stock's been pretty much cut in half on narrative, not on fundamentals. What to do? Do you believe all the nervous Nellies who are selling the stock or do you trust the fundamentals? No question that Mark Leonard stepping down is material to the company. But the team is very strong. 

Now around 20x PE. He expects double-digit topline and bottom line growth for many years to come. Companies aren't going to rip out what works in favour of untested solutions. Markets get things wrong. Trust the fundamentals. He's buying more.

The risk to software applications from AI is why the stock has been underperforming. If you've been paying a lot for subscriptions, you may be able to replace that with a new AI tool and a small team of engineers. That's what has investors concerned.

He's selling Saputo to buy this at this low price (on a downtrend). They buy companies to grow and that won't stop. AI eating the software business is at play now, but CSU Has software for cemeteries, so will cemeteries worry about chat GPT? CSU will still continue to grow. They pay 3x EBITDA. Nothing has changed except the valuation.

Watched with chagrin as it went up and up, but now thankful they didn't get on the train. Mark Leonard built a beast and executed like a well-oiled machine. But his team could never get their heads around the value. Recent deals haven't been big enough to move the needle. AI threatens certain verticals. 

Valuation still steep. And what if it can't regain its growth trajectory?