Constellation Software Inc.

George Athanassakos; Wangshen Lin; Parker Liu

Product #:9B15N029

Supplier:Ivey

Discipline:Finance

Setting:Canada, 2011

Details:Case (PDF) • 36 pages • 2015-12-17

Subjects:

Geography:

Canada North America

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$9.71

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An equity analyst at a value fund considers pitching to his fund manager the Canadian software maker Constellation Software Inc. The last software company he pitched was rejected for failing to meet the value fund’s investment criteria of low analyst coverage and small market capitalization with either a strong competitive advantage or a low price-earnings ratio and a low price-to-book ratio. The analyst has heard that Constellation Software is earning very high returns on invested capital deployed and wonders whether the company’s current valuation makes it a great business investment at a fair price.

Learning Objectives

The case demonstrates the steps for valuing a company’s growth within a value-investing framework. It is suitable for use in senior-level HBA and MBA classes in Value Investing, and for professionals and others interested in the applications of value investing. The case has the following learning objectives:

To estimate net asset value.
To estimate earnings power value.
To estimate return on invested capital (regular and adjusted).
To estimate weighted average cost of capital in an intuitive and straightforward way.
To apply the value investing concepts to value growth.
To estimate intrinsic value and the entry price for a growing company