Assessing Constellation Software (TSX:CSU) Valuation After RBC Flags It As A Top 2026 Tech Idea

RBC Capital Markets recently highlighted Constellation Software (TSX:CSU) as one of its top Canadian technology ideas for 2026, following its outline of expectations for healthy returns and broad based revenue and EBITDA growth across the sector.

See our latest analysis for Constellation Software.

Despite RBC's positive sector view, Constellation Software's recent trading has been mixed, with a 1 day share price return of 1.53% but a 90 day share price return of 15.83% and a 1 year total shareholder return of 21.66%. The 3 year and 5 year total shareholder returns of 48.91% and 107.86% point to momentum that has built over a longer horizon.

If RBC's call has you looking more broadly at software and digital leaders, it could be a useful moment to scan high growth tech and AI stocks for other potential ideas in the tech and AI space.

With the shares now below recent highs, annual revenue growth of 12.7% and net income growth of 17.2%, plus a stated 38.4% intrinsic discount, the key question is whether there is a buying opportunity here or whether the market is already pricing in future growth.

Price-to-Earnings of 72.7x: Is it justified?

Constellation Software trades on a P/E of 72.7x against a last close of CA$3,256.73, which points to a rich earnings multiple compared with peers.

The P/E ratio compares the current share price to earnings per share and is often used for software companies where recurring revenue and profit visibility matter to investors.

In this case, several data points show a high bar is set. Earnings grew 17% over the past year and have grown 15.4% per year over the past 5 years. Earnings are forecast to grow 17.2% per year, which is faster than the wider Canadian market. Even so, the SWS model suggests a fair P/E of 36.3x. The current 72.7x implies the market is paying a much higher price for each dollar of earnings than that fair ratio level indicates.

Compared with the Canadian Software industry average P/E of 47.3x and a peer average of 56x, Constellation Software sits materially higher on both counts at 72.7x. This suggests a premium valuation against sector benchmarks and the estimated fair ratio it could move towards.

Explore the SWS fair ratio for Constellation Software

Result: Price-to-Earnings of 72.7x (OVERVALUED)

However, there are risks to keep in mind, including a sharp de-rating in high-growth software valuations or slower acquisition opportunities that could challenge the current P/E premium.

Find out about the key risks to this Constellation Software narrative.

Another View: Our DCF Model Points the Other Way

While the current 72.7x P/E looks expensive next to peers and the fair ratio of 36.3x, our DCF model lands in a very different place. It puts fair value at CA$5,290.70 per share versus the last close of CA$3,256.73, which suggests the shares trade at a 38.4% discount. This raises the question of which signal should carry more weight for you.

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Constellation Software for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 876 undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own Constellation Software Narrative

If you see the numbers differently or simply like to test your own assumptions, you can build a custom view in just a few minutes, starting with Do it your way.

A great starting point for your Constellation Software research is our analysis highlighting 4 key rewards and 3 important warning signs that could impact your investment decision.

Looking for more investment ideas?

If you stop at one company, you risk missing other opportunities that fit you better, so widen your search and let the data do some of the heavy lifting.

• Spot potential bargains by scanning these 876 undervalued stocks based on cash flows that might be trading below what their cash flows suggest.
• Get ahead of major tech shifts by checking out these 29 quantum computing stocks at the front line of computing breakthroughs.
• Strengthen your passive income focus by zeroing in on these 11 dividend stocks with yields > 3% that already offer yields above 3%.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com