Most stocks that have achieved even modest and consistent growth in the past have technically outpaced the overall market. However, if we break it down on a yearly or quarterly level, we "thin" the herd, and there are fewer and fewer stocks as we stretch the timeline further back.
Still, a few stocks have crushed the market for well over two decades, and apart from a handful of dips and stagnation periods, they have always come out ahead. Constellation Software (TSX:CSU) is arguably the best of them.
The company
Constellation Software is primarily an acquisition company focusing on software businesses operating in various vertical markets. This has been their modus operandi for decades. They have a portfolio of six companies that collectively own hundreds of smaller businesses, catering to dozens of different vertical markets and over 125,000 clients in a hundred countries.
Constellation's financial and overall business success can be attributed to the success of hundreds of underlying software businesses/companies. This makes the company's operations highly diversified, both geographically and vertically (different industries), and resilient.
Future growth
Constellation Software's growth till now has been phenomenal. Between May 2006 and December 2024, the stock rose by over 25,000%, so technically, if someone invested just $4,000 in the company at the time of its inception, they would be millionaires by now.
It would be too ambitious for a similar return in the future, but the stock is still outpacing the market. It rose by over 44% since the beginning of 2024 compared to the market's 23%.
Even though the stock is massively overvalued and has a price-to-earnings ratio of over 111%, there is a strong probability that the stock will continue to grow and keep outpacing the market, at least in the near future.
There are a few reasons for that, starting with its history. The performance history has remained relatively consistent, and the stock has kept moving up despite high valuations and suspicions that its bullish stride might finally break.
Another reason is its ownership structure. Only about half the company (about 52%) is owned by the public. About 40% is owned by institutions that tend to have a more stable/consistent investment approach. Over 6% of the company is owned by insiders, which is a sign of a healthy company/stock.
Simply put, there are significant chances of the stock's continued growth and fewer chances of it taking a nosedive.
Foolish takeaway
Even though Constellation is highly stable for a tech stock and its performance history is exemplary, investors should also know about the potential danger signs.
One most significant sign is that in the last nine months, insiders have sold over 60,000 shares, and there haven't been any insider purchases. It may simply be insiders cashing out when the stock is on top, but it's still a trend worth considering.
