Should I Buy Constellation Software (CSU)? Finance YouTuber Analysis

The YouTuber is buying Constellation Software, citing its current price to free cash flow of 15, which is the lowest in over a decade despite strong revenue and free cash flow growth of 20% annually. He highlights the company's unique management culture with zero stock-based compensation and no share dilution since its IPO, making it a high-quality software stock he believes is undervalued and resilient to AI disruption.

“So this company is one of the ones where I don't think it's going to be disrupted by artificial intelligence. I think that its price is very low today and I think that it will continue to compound its underlying fundamentals over the longer term and for all of these reasons this is one of the top software stocks that I have continued to buy in the market.”

The YouTuber is buying Constellation Software, believing it will be a net beneficiary of AI, not disrupted by it. He highlights its business model of acquiring niche vertical market software companies, which are sticky and essential to customers. Despite a 50% stock drop, it trades at 15x free cash flow while growing over 20%, with strong management, zero dilution, and increasing acquisition opportunities due to less competition in the software market.

“It's selling for a low multiple of only 15 times cash flow while still growing over 20%. And I think that over the long term the market will finally differentiate between the software companies that are being disrupted and are not being disrupted.”

The YouTuber believes Constellation Software is undervalued, trading at 15 times free cash flow, significantly below its historical median of 25.2, despite compounding revenue and free cash flow by over 20% annually. He argues the market's AI disruption fears are unfounded for vertical market software companies like Constellation, which are deeply embedded in customer workflows and are actually benefiting from AI, allowing them to acquire more companies at attractive valuations.

“So, personally, I do think that Constellation Software stock is looking undervalued in the market today, and I have been a buyer on the way down.”

The YouTuber believes Constellation Software and its family of stocks (Topicus, Lumine Group) will benefit from AI rather than be disrupted. He argues that AI's usefulness in enterprise software is maximized when combined with proprietary data and existing software infrastructure, which Constellation Software possesses. The company's domain expertise, sales channels, and large coder base make it well-positioned to leverage AI for creating better software.

“All of these reasons are also why I think Constellation Software and its family of stocks will benefit from artificial intelligence and not be disrupted by it.”

The YouTuber is actively buying Constellation Software, noting its current trading multiple of below 15 times free cash flow, which he considers extremely cheap given the indiscriminate selling in the software sector. He argues that Constellation is immune to AI disruption and is actively benefiting from it by leveraging AI to build new products and agents for its software, as evidenced by new contracts and product announcements. Fundamentals are strong, with revenue and free cash flow hitting all-time highs and growth rates above 20%. A conservative DCF suggests a fair value 76% above current prices.

“I genuinely thought I would never see this price for Constellation Software again. And it wasn't even a year ago that the stock was trading for $5,200 per share.”

The YouTuber considers Constellation Software a high-quality business with excellent management, trading at its lowest multiple (16x free cash flow) since 2015 despite 20% annual revenue growth and 27% operating cash flow growth. He believes its vertical market software model provides a strong moat against AI disruption, and the current AI-induced sell-off presents a compelling buying opportunity.

“So for a 16 price to free cash flow for 20% annual growth I think this business is offering a very compelling price especially when I believe that the true AI disruption risk to this business is quite low.”

The YouTuber is actively buying Constellation Software, noting its 35% drawdown from all-time highs has brought its price-to-free cash flow multiple below its historical average to around 19-20. Despite market fears of AI disruption, the company's fundamentals remain strong, with revenue up 16% and free cash flow up 46% year-over-year, suggesting the investment thesis is intact and the stock is undervalued.

“I am actively buying this stock again in the market for the first time since 2022 because I believe that a 20 price to free cash flow, it's actually at 19 now is extremely fair for a company that is continuing to grow its top line by 16% and its bottom line by an even faster rate.”

The YouTuber shares a personal success story with Constellation Software, identifying it as a small company growing at 30% (now 15%). This investment multiplied their money by 20 times, demonstrating the potential of investing in smaller, high-growth companies before they become large and their growth slows.

“In fact, one of the best investments I made with little money was buying Constellation Software, these small companies that were growing at 30%, now it continues to grow at 15% and little by little, when it gets bigger, it will stop and will not give this kind of returns. But it was an investment that we multiplied our money by 20 times.”