This investor explains why he is buying Constellation Software

Lorne Steinberg Wealth Management senior vice-president of equities Martin Cobb said his firm is using the recent selloff in Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) as a buying opportunity, arguing that little has changed fundamentally despite investor unease following founder Mark Leonard stepping aside for health reasons.

Speaking on BNN Bloomberg Market Call on Jan. 27, Cobb said the firm is rotating capital out of Saputo and into Constellation, citing a valuation reversal that has created what he views as a rare entry point.

“A year ago, Saputo was trading at about a third of the price-to-earnings multiple of Constellation,” Cobb said. “Today it’s on the same multiple, actually slightly higher. So we’re switching our Saputo into Constellation Software.”

Cobb said Leonard’s departure has weighed heavily on sentiment but does not impair the company’s decentralized operating model or acquisition engine. He noted that Constellation has completed roughly 800 acquisitions since inception across about 150 vertical markets, with individual business units increasingly responsible for both operations and capital allocation.

“Yes, he’s been the architect of their success and instilled the culture and acquisition discipline,” Cobb said. “But the acquisition engine doesn’t stop.”

He also downplayed concerns that artificial intelligence could disrupt Constellation’s niche vertical-market software businesses, arguing that many of its applications face limited competitive pressure from generative AI.

“If you’re running a cemetery and your software works, you’re not too worried about ChatGPT,” he said. “The whole ‘AI eats software’ narrative has just taken hold, but I think it’s creating some great opportunities.”

Cobb pointed to Constellation’s long-standing acquisition playbook, with an average deal size of about $17-million, roughly 100 acquisitions per year, and purchase multiples near three times EBITDA. He said the shares are now trading at valuation levels not seen in a decade or more.

“To me, it just ticks all the boxes,” Cobb said. “Nothing’s really changed except the valuation.”

Constellation shares have lost 41.06% over the past 12 months but gained 78.94% over five years. Of the analysts covering the stock, 10 rate it “Buy,” three “Hold,” and zero “Sell,” with a consensus price target of $4,531.15.

The shares closed Jan. 28 at $2,640.06.

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