Q: What is the main stock valuation driver for Constellation Software, and can you please provide a sense of the trend? For example, if it’s free cash flow, then please provide the annual percentage change for each of the past three years, as well as the year-on-year percentage change for the discreet fourth quarter - 3 mos - of 2025 (since Q1 2026 is not yet available).
Additionally, has the compression in PE ratios of software companies translated into more acquisitions for CSU and acquisitions at more advantageous valuations?
Additionally, has the compression in PE ratios of software companies translated into more acquisitions for CSU and acquisitions at more advantageous valuations?
5i Research Answer:
The drivers have typically been P/E, operating cash flow (OCF), and, to a lesser extent, organic growth. The latter is highly variable, but generally investors have been happy with anything above 1%. OFC growth in the last three years: 2022/23 33%, 2023/2024 25%, 2024/2025 24%, 2025 Q4 67% year over year and 19% from the Q3. P/E has ranged from 59x to 80x (average yearly) and an intra-year range of 55x to 109x (21x now). Certainly the AI fear has made CSU more attractive on all valuation metrics. It has increased its pace of deals, but we would not say dramatically so. It did about $500M in acquisitions in the last quarter and has announced two since the quarter ended (note it does not announce all deals).