Investors who focus on amassing gains through capital appreciation often look to the tech industry to find quality growth stocks. Indeed, this industry has produced quite a few gems over the years. Perhaps the hottest tech stock at the moment, though, is Shopify. The e-commerce giant has seen its revenues — and its share price — skyrocket over the past few years. However, there is another tech stock whose returns have also shattered the market. The stock in question is Constellation Software (TSX:CSU). Below are two reasons why growth investors should consider adding this top tech stock to their portfolios.
A track record of excellence
Much like Shopify, CSU has delivered strong top-line growth, and that has been one of the main engines behind its soaring stock price. CSU’s brilliant business model — and the firm’s nearly flawless execution — have paid rich dividends. The tech company provides software services that are backed by long-term contracts and generally come with high switching costs. But CSU has broadened its revenue base by making shrewd acquisitions.
CSU acquires quality businesses and uses its expertise and industry know-how to transform these firms into even stronger players in their respective industries. CSU’s acquisitions serve another important fund — namely, to diversify the firm’s operations across sectors and borders. The company serves well over a hundred thousand clients all over the globe. Since 2015, CSU’s revenues have grown by 66%, which amounts to a more than 16% annual revenue growth. The tech company’s stellar track record goes back much further than that.
Despite Shopify’s rapid rise to stardom, the Ontario-based tech company isn’t yet consistently profitable. That may not be such a bad thing. Shopify has, to some extent, sacrificed short-term profits for the benefit of establishing a strong base to conquer the market down the line. This strategy is already paying off, although many analysts continue to warn that Shopify’s share price is severely overvalued. CSU, however, is consistently profitable, and its earnings have been in a general upward trend.
The company’s net income has grown by more than 400% over the past six years. It certainly seems likely that Shopify will eventually be profitable. But those who choose to invest in CSU now can profit from this already profitable business, along with the dividends the company pays. Of course, tech stocks aren’t known for their generous dividends, and CSU’s are by no means particularly juicy. However, the company’s dividend yield of 0.42%, which adds up to a payout of $5.29, is noteworthy.
The bottom line
CSU’s share price has increased by more than 460% over the past five years. While that pales in comparison to Shopify’s return over the same period, it is still leaps-and-bounds better than the average return of the market. CSU has a proven business model and the ability to execute its strategy expertly. The tech firm is likely not done growing.
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Fool contributor Prosper Junior Bakiny owns shares of Shopify. Tom Gardner owns shares of Shopify. The Motley Fool owns shares of Shopify and Shopify. Constellation Software and Shopify are recommendations of Stock Advisor Canada.
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