One no-brainer Canadian inventory to purchase now and maintain perpetually is Constellation Software program (TSX:CSU). Regardless of a 25% decline from its highs this yr, the tech inventory returned 734% during the last decade.

This primarily reworked an preliminary funding of $10,000 into about $83,420. In different phrases, it was an eight-bagger in that interval. Few shares can match that.

Why the weak spot in Constellation Software program inventory

Causes for the pullback embrace considerations concerning the impression of synthetic intelligence (AI) and the stepping down of founder and long-time president, Mark Leonard, as a consequence of well being causes.

Different considerations would possibly embrace the monetary well being of the corporate. Though its curiosity protection has declined since 2022, its present ratio has improved, whereas its monetary leverage has stayed at comparable ranges.

Listed below are some causes that make Constellation Software program a no brainer inventory to personal for the lengthy haul.

Vertical-market focus

Its concentrate on buying, managing, and constructing vertical market software program (VMS) companies that present mission-critical software program options to area of interest markets offers excessive pricing energy, low churn, lengthy buyer lifetimes, and predictable recurring income.

To reveal its earnings energy, its 10-year income and earnings progress have been a compound annual progress charge (CAGR) of twenty-two% and 24%, respectively.

Decentralized working mannequin

It acquires small companies whereas protecting their independence and entrepreneurial managers, permitting them to remain agile and hold their tradition. Concurrently, Constellation Software program gives sources and experience as wanted.

Disciplined M&A method

It prioritizes mergers and acquisitions (M&A) in founder-led companies with dominant market share and excessive revenue potential. And it reinvests their money movement for extra becoming acquisitions. 

This can be a scalable “purchase and construct” technique that maintains a long-term, buy-and-hold mannequin to proceed rising its income and money movement stream. Merely put, it’s a self-sustaining progress engine.

Exemplary capital allocation

Administration allocates sturdy free money movement into buying high-return area of interest software program corporations at smart costs and prioritizes reinvestment that maximizes long-term return on invested capital (ROIC), calculated by internet working revenue after tax ÷ invested capital.

To reveal its extraordinary capital allocation, its 10-year ROIC averaged about 23%, resulting in return on fairness (ROE), calculated by internet revenue ÷ shareholders’ fairness, averaged roughly 41% within the interval.

Enticing valuation

After a significant correction that we have now not seen within the fantastic enterprise for a very long time, the inventory is attractively valued. At $3,950 per share at writing, the analyst consensus worth goal of $5,505 represents a hefty low cost of about 28%. In different phrases, it implies 39% of near-term upside potential.

Investor takeaway

Right here’s a well-known quote from Warren Buffett: “It’s much better to purchase a beautiful firm at a good worth than a good firm at a beautiful worth.” 

Given Constellation Software program’s monitor report of execution, resulting in unimaginable wealth creation for long-term shareholders, it’s a fantastic firm. Importantly, the inventory has pulled again by a large margin, making the fantastic enterprise not at a good worth however at a beautiful worth. 

It makes the highest tech inventory a strong purchase now to be held for an extended, very long time. For buyers prepared to just accept the uncertainties, they will seize the chance to load up on some shares.