This investor never liked Constellation Software. He does now.

J. Zechner Associates chairman and founder John Zechner said the recent pullback in Constellation Software (Constellation Software Stock Quote, Chart, News, Analysts, Financials TSX:CSU) has created a more attractive entry point for investors.

Speaking on BNN Bloomberg’s Market Call on March 4, Zechner said his firm has begun buying shares after previously avoiding the stock due to valuation concerns.

“This is a stock that I’ve never talked about on air or about owning,” he said. “For years I stayed away because the valuation always looked excessive.”

Zechner noted the company historically traded at about 25 times operating cash flow while relying heavily on acquisitions for growth, which he believed made the valuation difficult to justify.

With the shares now trading closer to 12 times operating cash flow following a sharp decline, he believes the risk-reward profile has improved. The stock has fallen roughly 45% over the past 12 months.

Zechner said the company’s long-standing strategy of acquiring vertical market software companies remains intact despite leadership changes, including the departure of founder Mark Leonard from the CEO role.

“I don’t think Mark Leonard leaving has really changed that strategy,” he said, adding that the company now has the scale and structure to continue executing its acquisition model.

He also argued that current conditions in the software market could strengthen Constellation’s position as an acquirer, as valuations decline and competition from private equity buyers becomes more constrained.

“I expect over the next couple of quarters we’ll start to see their acquisition activity pick up dramatically,” he said.

Constellation Software shares have gained 55.7% over the past five years. Of the analysts covering the stock, 10 rate it “Buy,” three “Hold” and none “Sell,” with a consensus price target of $4,120.

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