What is your analysis of Constellation Software?
Thanks for the assignment. Constellation Software Inc. (CSU TSX) is a deal factory player in the software space having acquired 125 small players in niche markets. Once a deal is completed CSU allows the management of the acquired company to continue to operate freely in their unique vertical space avoiding culture clashes that destroy value. The stock has been on a tear since November of 2011 when it bounced off of $60.00 and ran to a 52-week high of $284.72 by April of 2014.
An inspection of the charts will provide insight as to trend, support, and resistance that will form the basis of the analysis.
The three-year chart provides a textbook example of a solid two year advance that has taken a breather. The uptrend line has been breached and the stock is trading below the 50-day moving average. The MACD and the RSI both signalled a shift towards selling in early April as some investors booked well earned profits ahead of the release of Q1 results. What needs to be established is if CSU can start another new leg up and continue the advance.
The six-month chart provides a close up of the top in April of 2014 and the sell signals generated by the MACD and the RSI. What is evident is that since May resistance has formed at $250.00. What we are seeing is a pullback not necessarily a trend reversal. CSU has broken below support along the 50-day moving average but seems to be building a base. The MACD and the RSI are indicating that buyers are still interested in this growth story.
The next major event on the calendar for the stock will be the release of Q2 results in July. CSU is a high multiple stock which needs to feed the street in order to keep driving the advance.
Make it a profitable day and happy capitalism!