Is Constellation Software Inc. (TSE:CSU) Potentially Undervalued?

Let's talk about the popular Constellation Software Inc. (TSE:CSU). The company's shares saw a double-digit share price rise of over 10% in the past couple of months on the TSX. As a large-cap stock with high coverage by analysts, you could assume any recent changes in the company’s outlook is already priced into the stock. But what if there is still an opportunity to buy? Let’s examine Constellation Software’s valuation and outlook in more detail to determine if there’s still a bargain opportunity.

See our latest analysis for Constellation Software

What Is Constellation Software Worth?

Great news for investors – Constellation Software is still trading at a fairly cheap price. According to my valuation, the intrinsic value for the stock is CA$2723.01, which is above what the market is valuing the company at the moment. This indicates a potential opportunity to buy low. What’s more interesting is that, Constellation Software’s share price is theoretically quite stable, which could mean two things: firstly, it may take the share price a while to move to its intrinsic value, and secondly, there may be less chances to buy low in the future once it reaches that value. This is because the stock is less volatile than the wider market given its low beta.

What does the future of Constellation Software look like?

Investors looking for growth in their portfolio may want to consider the prospects of a company before buying its shares. Buying a great company with a robust outlook at a cheap price is always a good investment, so let’s also take a look at the company's future expectations. However, with a negative profit growth of -0.9% expected over the next couple of years, near-term growth certainly doesn’t appear to be a driver for a buy decision for Constellation Software. This certainty tips the risk-return scale towards higher risk.

What This Means For You

Are you a shareholder? Although CSU is currently undervalued, the adverse prospect of negative growth brings about some degree of risk. Consider whether you want to increase your portfolio exposure to CSU, or whether diversifying into another stock may be a better move for your total risk and return.

Are you a potential investor? If you’ve been keeping an eye on CSU for a while, but hesitant on making the leap, I recommend you dig deeper into the stock. Given its current undervaluation, now is a great time to make a decision. But keep in mind the risks that come with negative growth prospects in the future.

If you'd like to know more about Constellation Software as a business, it's important to be aware of any risks it's facing. Be aware that Constellation Software is showing 2 warning signs in our investment analysis and 1 of those is concerning...

If you are no longer interested in Constellation Software, you can use our free platform to see our list of over 50 other stocks with a high growth potential.

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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.