Written by Amy Legate-Wolfe at The Motley Fool Canada
There aren’t too many stocks out there that I’m considering buying, never mind actually picking up on the TSX today. The market remains down but has shown signs of improvement thanks to the Consumer Price Index (CPI) improvement in the United States this week. However, when it comes to a safe, stable growth stock, I would consider Topicus.com (TSXV:TOI) the best option. In fact, there are at least three reasons I’m buying Topicus stock these days.
There aren’t too many tech stocks out there that can claim to be actually essential. Yet that’s what Topicus stock is. The company acquires essential software companies across Europe. These are companies we need every day without even realizing it. These companies offer software to take out library books, purchase tickets for the subway, or even just check your bus schedule.
These essential software companies are only growing more and more. Yet they’re small, which is why it’s fairly easy for Topicus stock to pick them up. Topicus then pushes them out under its own brand, so it can rake in revenue.
Once that’s done, Topicus stock can simply go out and purchase more companies, create more revenue, and continue the process again and again. And there’s proof the company can make this work.
The best backer
There’s something some may not realize about Topicus stock, and that’s that it’s a spinoff of Constellation Software (TSX:CSU). Constellation stock has been around for decades, doing exactly what I just described. Its management team has been wildly successful at this method of growth through acquisitions.
The acquisition company has grown substantially, moving the share price from double to quadruple digits in the last decade or so. Now, it’s a fairly expensive stock. This is exactly why the company wanted to create the spin-off version of Topicus stock.
Now, the two companies are looking like they could practically take over the world. With Constellation stock focusing on North America and Topicus stock on Europe, the pair should see massive increases in share price and the bottom line in the near and distant future.
Growth and more growth
Topicus stock recently reported earnings for its third quarter, with growth across the board speaking to even more in the future. Topicus stock saw revenue rise 22%, with 8% from organic growth alone. Net income was up to €28.3 million from €18.4 million, with cash flows from operations also rising €14.6 million to €25.5 million compared to €10.9 million last year, representing an increase of 134%!
So, despite being relatively new on the market, Topicus stock looks like it’s already going to be rising the same way that Constellation stock did over a decade before. And with management from Constellation on its side, it’s a stock that investors can feel confident in.
Yet shares are still a steal, in my view. Shares are up 21% in the last year but down about 7% in the last week. It’s unclear why the company remains a hold, but that could perhaps just be due to the current bear market we’re in. It remains to be seen whether it’s a better time coming for acquisitions, as interest rates and inflation fall. So, Topicus stock could, in fact, rise further, with now a great time to consider picking up the stock on the dip. I know I’ll be considering it.
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Fool contributor Amy Legate-Wolfe has positions in Topicus.com. The Motley Fool has positions in and recommends Topicus.com. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.