CSU is a bad bet due to low organic growth (3%) and risky M&A strategy; wait for market cap to drop to 30-40B CAD.

Constellation Software stock has rebounded a little bit, but is still significantly down from the previous highs. I have put it on my bets side of the quadrant, which I'm going to update tomorrow, but Constellation in this case deserves a specific video.

If you look at revenue growth, great numbers, 17% growth. You're saying, "Sven, 17% growth, how can that business be down so much? Everything looks great, cash flows up 10%, free cash flows to shareholders 57%." All those numbers look really, really good.

However, if you go to look at organic growth, just the businesses growing by themselves, then the story changes significantly. We have 3% growth compared to the same quarter For the 6 months ended 4%, which means there is more of a slowdown in the recent quarter.

And when you have such an organic 3% growth, that immediately changes the whole aspect of the investment, because then the whole growth story is an M&A story.

And then I look a little bit at the cash flows, great provided by operating activities. We have a billion point three four the last 6 months. However, if I compare those numbers with the cash used in acquisition of businesses, that is more.

Thus, they are spending more than the operating cash flows for acquisitions.

As they're acquiring all these businesses, how are those businesses operating with negative working capital? So, collection of maintenance payments and other revenues in advance of the performance to the related services.

Then they say that the strategy is that these businesses continue to grow organically without any additional funding. But we have just seen that 3% growth, that can mean that half of the businesses are growing at 6%, which could be a standard inflation growth, and half are declining.

So there is not really that organic growth that one could expect there.

Yes, and people say those are vertical market software businesses moats, but 3% is not that moat-worthy. And they just keep acquiring. So some businesses are growing, some are not, but they are spending more than the free cash flow.

Another issue I have here, when it comes to this aggressive M&A strategy, where you simply spend all the cash flow and more on buying other businesses, that means that also your acquisition strategy doesn't care about the purchase price.

That's what I'm buying, I'm buying everything. All the sellers are happy to sell to you. So that's also an difficult thing to accept as a business perspective, from a value investing perspective.

Warren Buffett is about buying at the right time. Constellation Software buys all the time. Sometimes it can be cheap, but it can't be the right price all the time.

Then you say, but these are niche critical software with moats. Okay. AI situation, some say software will be impacted, some say not. But perhaps it might not be just an AI issue.

They have acquired 12% of Sabre Corporation, another booking hotels travel software platform that looks very ugly, but okay, everything is stable there.

Then, if you go to make these bigger acquisitions, there is more competition. Then, we are back to the price story. And then I'm saying, this is not an AI scare. This is a size scare.

This is a buying at whatever price situation scare.

There is no moat because if you have a moat, you can simply grow in line with the economy and inflation, which is 5-6% not 3%. Even if AI disrupts just 10% of that, there goes your organic growth, which then becomes an M&A machine just circling the wheel, but without delivering tangible value to shareholders.

So, I'm not saying this will go bankrupt. I don't see the comments. It's a great business. I'm just saying that the business model has an inherent risk that nobody wants to discuss because you're not allowed.

This guy is a genius, the previous founder and CEO, all great. But, I'm looking at the business.

Okay, it has compounded greatly. Sometimes people get overexcited, sometimes get panic. But, when I look at the numbers, net income is growing. Okay. But then, if I look at the organic growth, if I look at everything, then I say, net income doesn't include impairments.

What if the buy price projects a certain gain on those, but that gain doesn't happen, then you have to impair. And they never impair anything because they are geniuses at buying.

Questionable. We don't know what they are buying. We don't know the details. That's not disclosed.

Okay, they have the asset write-downs and restructuring costs, just 40 million. That's nothing. Amortization and depreciation, okay, that grows as they buy. They amortize it, the intangible assets.

Okay, but is that amortization right or wrong? Those are long-term estimations.

And when it comes to long-term estimations, just small changes in wrong or right has big impact on future impairments and the true owners' earnings that are simply not disclosed here.

If I look deeper, okay, cash from operations, great. But all the cash from operations is used for growth. Where? We don't know whether the buys here, all the money spent, the billions here, if organic growth is now 3% means that the business bought 2 years ago is already declining or the business bought 2 years ago is still growing at 10%, but that 4 years is declining at 20% because now the buys are bigger.

And that's simply an inconsistency. I find it very hard to find a solution in my mind.

Free cash flows look great, but those free cash flows need to be reinvested no matter the price. I'm missing here true value compounding. Okay, show me this engine is creating so much value and is creating more value in the future. That's missing.

The value of what they are buying is declining over time, which means the price they are paying is extremely important, but that's not disclosed. It's all a growth story. The net income and amortization is based on their estimations, which is a very risky business model to invest in.

M&A okay, is risky by itself, and when forced we need to spend all the free cash flow, no matter the price. My point is, okay, maybe it's great, but it's hard to know the truth, the value behind this business because it's not disclosed.

When everything grows, great. When it stops growing, then all the skeletons might come out. Great story, great spiel. Perhaps he's right. I'm not saying this is a fraud or something.

I'm just saying the risk of not being exactly what it presents itself as is too high.

Therefore, as a value investor, I'm just putting it into the too hard pile. Further, from a valuation perspective, a business organically growing at 3%, not growth 17% that they are engineering through M&A. 3% growth, that's just inflation.

Fair trade would be at 10 times free cash flows. If it is 3 billion CAD, that's 30 billion market cap, that's half of where it is.

Another risk to think about. For me, it's a bad bet. Wake me up at 30-40 billion CAD, and then we'll see.

When it comes to the bets, I'm canceling it out. If it goes up and down, okay. If it goes down 50% from here, we can discuss it again. Looking forward to the comments, it will be spicy there.

I'm just saying the risk of the business model is bigger than the AI scare.