Stock price when the opinion was issued
He'd prefer CSU over TOI, but you should also look at LMN. LMN has done tremendously well since it was spun off. LMN was a vertical business that catered to agri, financial services, and education.
MSFT has software that goes horizontally across a whole bunch of industries, whereas CSU is more vertical. It's been very steady, even when the market goes into selloff mode. Has 5 operating segments.
TOI is out of Europe, and more on the engineering side.
This was the first Constellation Software spinoff and is essentially the CSU of Europe. It has a high ROC, high margins and just paid a special dividend. It has a great track record of acquisitions. It doesn't get a lot of attention and so is trading at a 20 to 25% discount to CSU and LMN and is the cheapest of the three. Buy 0 Hold 1 Sell 0
(Analysts’ price target is $121.00)He sold and put proceeds back into CSU, the mother ship. Reasons included CSU still owning part of the spinoff. So when you own CSU, you still own part of TOI and LMN. Plus, analysis became simpler. CSU will probably do further spinoffs.
Now, stock price of CSU is high if you aren't awash in funds. His kids collect bottles and cans for extra money, and they can afford and own TOI shares, but not CSU. They eat their own cooking in the Del Vicario family ;)
It follows the Constellation Software model. It is European focussed which is perceived to be a problem and North America is more in favour at the moment. However it could spin the European situation into a positive situation. Their accretive acquisition model should be good. Don't look at the quarters but instead rely on management and the overall strategy.
The slowdown in TOI's acquisition pace and revenue growth is concerning for sure, given that a lot of optimism has been priced into the share price due to its involvement with CSU. That being said, one year does not make a trend, and historically, CSU also experienced a similar situation in one year where the company’s growth was only 10% (FY2015) and a few years of around 13% (FY2019 and FY2020). Companies are run by people, not machines, over the next ten years, there will be great years, bad years, and so-so years. We would remain bullish on TOI but, at the same time, we would be open enough to change our minds if the operating results do not improve over time.
Unlock Premium - Try 5i Free
Does the same thing as CSU, but focusing on European markets. Nice 5% organic growth rate, which is very good. Deployed a lot of capital this year at really good rates of return. One of the most exciting compounders in Canada. Can hold for an extended period of time, as in 15-20 years. No dividend.
(Analysts’ price target is $163.00)