Constellation Software Inc. (CSU.TO)

Let's look at the 5-year chart. You can see the uptrend, but that a bigger downtrend has taken hold. Support's around $2750. Stock's trading right below that, and if it's taken out then next support is something like $2333 (another 10% downside). He'd trim here, more downside coming. If it does bottom and start to reverse up, you can add back -- but not now.

The 10-15 year chart has a bigger longer-term uptrend. It's been broken and is heading lower. It's telling you that something significant has changed. The big advantage of technical analysis is risk mitigation and risk control. To many, the stock drop of 30-40% means that it's 30-40% cheaper. But technical analysis can suggest there's more going on under the surface. In this case, AI has affected a lot of these software companies.

CSU lies at the center of the AI debate concerning software. Their organic growth is slowing a lot. Software developing costs are falling to zero, so a lot more companies are building this software themselves. Maybe CSU continues to buy small companies. There are many question marks about CSU, including what is the moat? Cheap doesn't mean valuable. But he hopes CSU rights the ship.

(Timeframe not quite a year.)  He actually bought more on the stock's drop, which is absolutely overdone. Generates 8% FCF yield if you look at 2027 numbers. As with TOI, vertical software integration companies might actually be beneficiaries with what is happening with AI. 

Last year was its second-highest year of capital deployment. Private equity is not as competitive right now, so CSU can do acquisitions much faster.

Acquisitions are immediately accretive to the bottom line. There comes a point where you've rolled up all you can roll up. You can't keep rolling at the same rate, just not as many opportunities to go around. May be a while before it recovers.

Follows closely, given its long-term track record. With pullback, now ranks 10/10 on fundamentals. Near-term story is on pause. Organic growth slowed this past quarter, the slowest pace in 2 years. Big overhang is the Altera acquisition, struggling to regain momentum, and reminding the market that not every deal delivers immediately. M&A remains the engine of the model, but deal activity is running about 15% behind last year's.

Analysts still see almost 45% upside from here. On her watchlist. For her to jump in, she'd need strong conviction on a turnaround or at least that it's not still on the downward technical trend.

Was spun-out from Constellation Software, which he owns. He sold TOI to buy more Constellation, which owns large stakes of TOI anyway. He wanted to keep things simple. His kids own TOI, which trades at $120 vs. $3,300 for Constellation, so TOI is more accessible to investors. Also, it's easier to grow the smaller TOI than Constellation through acquisitions. Both are great businesses to own. Shares of both are down a lot now on fears that AI will replace software. (He doesn't know either way.)

The CEO just retired for health reasons. CSU can survive this CEO change. They have a history of buying companies then letting them operate. They deploy capital at high rates of return as they scale, which is hard to do. A risk is can they continue to do this? He thinks so.

Great business over time. High-quality cashflow stream. Suffered from "key man" risk, Mark Leonard was the visionary behind its capital model. Question is whether new CEO can maintain the same rate of return?

His firm's strategy needs 3 things. 1) Like the sector. Software as a whole has been a weaker relative performer within tech and vis-a-vis the rest of the market.  2) Strong fundamental characteristics, "good and getting better".  3) Technicals intact. This stock is a bit broken, trading below 200-day MA. 

Lots of other things to do right now in other parts of the market. Wait and see on this one. Remember, he's not a value investor. He's willing to give up a bit off the bottom to actually see things improving before putting $$ to work.

Hold if you own, consider picking it up if you don't. CEO stepping aside surprised markets. Serial acquirer of vertically integrated software. Thousands upon thousands of small companies worldwide to potentially be scooped up. Deep pipeline of potential deals.

Concerns of software being disrupted by AI. Thinks it's the best-performing company on the TSX since it went public almost 20 years ago.

Phenomenal compounder. Sentiment has gone against it over the short term. Over the long term that will re-rate, and you'll get your opportunity for earnings growth and multiple expansion. Some concern has focused on change in CEO, yet this is a very decentralized business. Timing was unfortunate.

Real uncertainty is on the AI side. Yet reality is that these are companies that are going to be using that capability to make their products better. Quite constructive on it at this price, a great buy. Yield is 0.16%.

Its strategy of making accretive buys can still continue. Buy when it's down. Investors are taking a dim view of software while AI has had the sizzle. Analysts are modelling 18% growth, trading at 24x PE for 2027 -- kind of pricey, and similar to NFLX. NVDA is actually a cheaper stock on price to book.

If you put a gun to his head and said choose Buy or Sell right now, he'd say to buy. But other places have slightly better risk/reward and more upside. He wouldn't sell down here at these levels. 

Canada always has a tech darling that it flocks to for years -- stock goes up, and then it comes down. You can see this on the 3-year chart. Did a really good job, but valuations that high don't last forever. As it gets bigger, needs to make bigger acquisitions. These growth-by-acquisition stories don't usually end well. No dividend.

She wants to see organic growth and a reasonable valuation.

Doesn't this remind you of Berkshire Hathaway, when the patriarch steps aside? He lightened up when it went through $3500, and would love to get back in. In situations like this, he finds that you need to go through a couple of quarters and just see how it's performing. Fantastic company. 

Has slid since the summer. Some investors are worried about AI threatening their business, and the CEO surprisingly resigned for health reasons. It's too early to answer the AI question. They have a lot of resources and are already using AI. Is one of the best Canadian companies and compounds capital well. At 19x earnings is a super entry point.

Is hurt by the CEO retiring and the fears of AI impacting their business. The won't change their hurdle rate when they buy future companies. Basically, CSU buys software businesses and won't change their approach. Will continue to execute well, even with a new CEO.