Examining how Constellation Software Inc (TSE:CSU) is performing as a company requires looking at more than just a years’ earnings. Below, I will run you through a simple sense check to build perspective on how Constellation Software is doing by comparing its most recent earnings with its historical trend, in addition to the performance of its software industry peers.
Could CSU beat the long-term trend and outperform its industry?
CSU’s trailing twelve-month earnings (from 30 June 2018) of US$265m has jumped 18% compared to the previous year.
However, this one-year growth rate has been lower than its average earnings growth rate over the past 5 years of 23%, indicating the rate at which CSU is growing has slowed down. To understand what’s happening, let’s examine what’s transpiring with margins and if the entire industry is feeling the heat.
In terms of returns from investment, Constellation Software has invested its equity funds well leading to a 40% return on equity (ROE), above the sensible minimum of 20%. Furthermore, its return on assets (ROA) of 11% exceeds the CA Software industry of 5.1%, indicating Constellation Software has used its assets more efficiently. However, its return on capital (ROC), which also accounts for Constellation Software’s debt level, has declined over the past 3 years from 31% to 29%.
What does this mean?
Though Constellation Software’s past data is helpful, it is only one aspect of my investment thesis. Positive growth and profitability are what investors like to see in a company’s track record, but how do we properly assess sustainability? You should continue to research Constellation Software to get a better picture of the stock by looking at:
- Future Outlook: What are well-informed industry analysts predicting for CSU’s future growth? Take a look at our free research report of analyst consensus for CSU’s outlook.
- Financial Health: Are CSU’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
- Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
NB: Figures in this article are calculated using data from the trailing twelve months from 30 June 2018. This may not be consistent with full year annual report figures.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at email@example.com.