Constellation Software (TSX:CSU) - Share price, News & Analysis

Q: What is the Fair Price of CSU when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

CSU (CA$2150.51) is trading below our estimate of [[fair value]] (CA$3492.98)

CSU fundamental analysis
Snowflake Score
Valuation	3/6
Future Growth	4/6
Past Performance	5/6
Financial Health	2/6
Dividends	0/6

CSU Stock Overview

Constellation Software Inc., together with its subsidiaries, acquires, builds, and manages vertical market software businesses in Canada, the United States, the United Kingdom, and rest of Europe.

Rewards

Trading at 38.4% below our estimate of its fair value

Earnings are forecast to grow 27.12% per year

Earnings grew by 29.7% over the past year

Risk Analysis

Has a high level of debt

Significant insider selling over the past 3 months

Constellation Software Competitors

Descartes Systems Group

TSX:DSG

CA$7.8b

Enghouse Systems

TSX:ENGH

CA$1.8b

Coveo Solutions

TSX:CVO

CA$631.3m

Magnet Forensics

TSX:MAGT

CA$936.4m

Price History & Performance

Summary of all time highs, changes and price drops for Constellation Software
Historical stock prices
Current Share Price	CA$2,150.51
52 Week High	CA$2,385.80
52 Week Low	CA$1,793.93
Beta	0.83
1 Month Change	9.02%
3 Month Change	8.65%
1 Year Change	5.51%
3 Year Change	70.00%
5 Year Change	210.04%
Change since IPO	11,683.62%

Recent News & Updates

Aug 05

Is There An Opportunity With Constellation Software Inc.'s (TSE:CSU) 33% Undervaluation?

How far off is Constellation Software Inc. ( TSE:CSU ) from its intrinsic value? Using the most recent financial data...

Jul 06

Constellation Software (TSE:CSU) Seems To Use Debt Rather Sparingly

Warren Buffett famously said, 'Volatility is far from synonymous with risk.' When we think about how risky a company...

Jun 23

Is It Time To Consider Buying Constellation Software Inc. (TSE:CSU)?

Let's talk about the popular Constellation Software Inc. ( TSE:CSU ). The company's shares saw significant share price...

Shareholder Returns

	CSU	CA Software	CA Market
7D	-1.3%	2.2%	-0.8%
1Y	5.5%	-26.3%	-2.0%

Return vs Industry: CSU exceeded the Canadian Software industry which returned -26.3% over the past year.

Return vs Market: CSU exceeded the Canadian Market which returned -1.9% over the past year.

Price Volatility

Is CSU's price volatile compared to industry and market?
CSU volatility
CSU Average Weekly Movement	3.7%
Software Industry Average Movement	13.5%
Market Average Movement	10.8%
10% most volatile stocks in CA Market	19.4%
10% least volatile stocks in CA Market	4.4%

Stable Share Price: CSU is less volatile than 75% of Canadian stocks over the past 3 months, typically moving +/- 4% a week.

Volatility Over Time: CSU's weekly volatility (4%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1995	n/a	Mark Leonard	https://www.csisoftware.com

Constellation Software Inc., together with its subsidiaries, acquires, builds, and manages vertical market software businesses in Canada, the United States, the United Kingdom, and rest of Europe. Its industry specific software businesses provide specialized and mission-critical software solutions. The company serves public and private sector markets.

Constellation Software Fundamentals Summary

How do Constellation Software's earnings and revenue compare to its market cap?
CSU fundamental statistics
Market Cap	US$35.20b
Earnings (TTM)	US$454.00m
Revenue (TTM)	US$5.73b

77.5x

P/E Ratio

6.1x

P/S Ratio

Is CSU overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
CSU income statement (TTM)
Revenue	US$5.73b
Cost of Revenue	US$3.66b
Gross Profit	US$2.07b
Other Expenses	US$1.62b
Earnings	US$454.00m

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	21.42
Gross Margin	36.15%
Net Profit Margin	7.92%
Debt/Equity Ratio	112.7%

How did CSU perform over the long term?

See historical performance and comparison

Dividends

0.3%

Current Dividend Yield

19%

Payout Ratio

We’ve recently updated our valuation analysis.

Valuation

Is CSU undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

3/6

Valuation Score 3/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for CSU?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for CSU. This is calculated by dividing CSU's market cap by their current preferred multiple.
What is CSU's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$35.20b

CSU key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	6.4x
Enterprise Value/EBITDA	30x
PEG Ratio	2.9x

Price to Earnings Ratio vs Peers

How does CSU's PE Ratio compare to its peers?

CSU PE Ratio vs Peers

The above table shows the PE ratio for CSU vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	93.2x
DSG Descartes Systems Group	66.6x	18.1%	CA$7.8b
ENGH Enghouse Systems	20.2x	-3.3%	CA$1.8b
CVO Coveo Solutions	1.2x	-130.6%	CA$631.3m
MAGT Magnet Forensics	197.2x	76.1%	CA$936.4m
CSU Constellation Software	77.5x	27.1%	CA$45.6b

Price-To-Earnings vs Peers: CSU is good value based on its Price-To-Earnings Ratio (77.5x) compared to the peer average (93.2x).

Price to Earnings Ratio vs Industry

How does CSU's PE Ratio compare vs other companies in the CA Software Industry?

Price-To-Earnings vs Industry: CSU is expensive based on its Price-To-Earnings Ratio (77.5x) compared to the Canadian Software industry average (51.4x)

Price to Earnings Ratio vs Fair Ratio

What is CSU's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

CSU PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	77.5x
Fair PE Ratio	37.1x

Price-To-Earnings vs Fair Ratio: CSU is expensive based on its Price-To-Earnings Ratio (77.5x) compared to the estimated Fair Price-To-Earnings Ratio (37.1x).

Share Price vs Fair Value

What is the Fair Price of CSU when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: CSU (CA$2150.51) is trading below our estimate of fair value (CA$3492.98)

Significantly Below Fair Value: CSU is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is less than 20% higher than the current share price.

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Future Growth

How is Constellation Software forecast to perform in the next 1 to 3 years based on estimates from 5 analysts?

Future Growth Score

4/6

Future Growth Score 4/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

27.1%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: CSU's forecast earnings growth (27.1% per year) is above the savings rate (1.6%).

Earnings vs Market: CSU's earnings (27.1% per year) are forecast to grow faster than the Canadian market (7.6% per year).

High Growth Earnings: CSU's earnings are expected to grow significantly over the next 3 years.

Revenue vs Market: CSU's revenue (18.5% per year) is forecast to grow faster than the Canadian market (6% per year).

High Growth Revenue: CSU's revenue (18.5% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: Insufficient data to determine if CSU's Return on Equity is forecast to be high in 3 years time

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Past Performance

How has Constellation Software performed over the past 5 years?

Past Performance Score

5/6

Past Performance Score 5/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

9.5%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: CSU has high quality earnings.

Growing Profit Margin: CSU's current net profit margins (7.9%) are higher than last year (7.7%).

Past Earnings Growth Analysis

Earnings Trend: CSU's earnings have grown by 9.5% per year over the past 5 years.

Accelerating Growth: CSU's earnings growth over the past year (29.7%) exceeds its 5-year average (9.5% per year).

Earnings vs Industry: CSU earnings growth over the past year (29.7%) exceeded the Software industry 26.3%.

Return on Equity

High ROE: Whilst CSU's Return on Equity (30.54%) is high, this metric is skewed due to their high level of debt.

Discover strong past performing companies

Financial Health

How is Constellation Software's financial position?

Financial Health Score

2/6

Financial Health Score 2/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: CSU's short term assets ($2.2B) do not cover its short term liabilities ($3.5B).

Long Term Liabilities: CSU's short term assets ($2.2B) do not cover its long term liabilities ($2.3B).

Debt to Equity History and Analysis

Debt Level: CSU's net debt to equity ratio (72.2%) is considered high.

Reducing Debt: CSU's debt to equity ratio has increased from 69.8% to 112.7% over the past 5 years.

Debt Coverage: CSU's debt is well covered by operating cash flow (64.2%).

Interest Coverage: CSU's interest payments on its debt are well covered by EBIT (14x coverage).

Balance Sheet

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Dividend

What is Constellation Software current dividend yield, its reliability and sustainability?

Dividend Score

0/6

Dividend Score 0/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

0.31%

Current Dividend Yield

Dividend Yield vs Market

Notable Dividend: CSU's dividend (0.31%) isn’t notable compared to the bottom 25% of dividend payers in the Canadian market (1.96%).

High Dividend: CSU's dividend (0.31%) is low compared to the top 25% of dividend payers in the Canadian market (5.36%).

Stability and Growth of Payments

Stable Dividend: CSU is not paying a notable dividend for the Canadian market, therefore no need to check if payments are stable.

Growing Dividend: CSU is not paying a notable dividend for the Canadian market, therefore no need to check if payments are increasing.

Earnings Payout to Shareholders

Earnings Coverage: CSU is not paying a notable dividend for the Canadian market.

Cash Payout to Shareholders

Cash Flow Coverage: CSU is not paying a notable dividend for the Canadian market.

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Management

How experienced are the management team and are they aligned to shareholders interests?

2.4yrs

Average management tenure

CEO

Mark Leonard (66 yo)

27.58yrs

Tenure

Mr. Mark Henri Leonard founded Constellation Software Inc. in 1995 and serves as its President. Mr. Leonard worked in the venture capital business for eleven years. He served in the United States and Canad...

CEO Compensation Analysis

Compensation vs Market: Insufficient data to establish whether Mark's total compensation is reasonable compared to companies of similar size in the Canadian market.

Compensation vs Earnings: Mark's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: CSU's management team is considered experienced (2.4 years average tenure).

Board Members

Experienced Board: CSU's board of directors are considered experienced (4.5 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: CSU insiders have only sold shares in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/06 00:00
End of Day Share Price	2022/08/05 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31