If I could only buy and hold a single stock right now, Topicus.com (TSXV:TOI) would be my top choice. This tech stock has quietly become a powerhouse in the Canadian software sector, operating under the radar compared to some of its more well-known tech peers. But that low profile is precisely what makes it so intriguing. It’s a spin-off of Constellation Software, a company legendary for its acquisition-driven growth model.
Topicus.com is following in those footsteps, focusing on acquiring and managing vertical market software businesses across Europe. With a strong history of revenue and earnings growth, a strategic approach to acquisitions, and a resilient business model, it has all the makings of a long-term compounder.
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The numbers
One of the most compelling reasons to invest in Topicus.com is its consistent revenue growth. The tech stock recently reported its financial results, showing that its revenue for the trailing 12 months reached €1.29 billion, an impressive increase from €1.12 billion the previous year. This kind of steady, predictable revenue growth is a key characteristic of companies that can thrive for decades.
The software businesses Topicus.com acquires are often deeply embedded in the industries they serve, thus making products essential and ensuring recurring revenue streams. With a gross profit of €471.4 million and a net income of €92 million, the tech stock’s ability to translate revenue into real profitability is evident.
Looking at the most recent quarterly earnings, Topicus.com has continued to perform well. The tech stock reported quarterly revenue growth of 17.8% year-over-year – remarkable considering the broader economic headwinds affecting tech companies globally. Even more impressive is the company’s quarterly earnings growth, which came in at 32.6% year-over-year.
Value and growth
Despite its growth, Topicus.com is still trading at a relatively high valuation, with a trailing price/earnings (P/E) ratio of 83.3 and a forward P/E of 50. However, valuations in the tech space often remain elevated when a tech stock demonstrates strong earnings potential and a durable competitive advantage. Investors who bought into Constellation Software early on had to accept similarly high multiples. Yet those who held on for the long term were handsomely rewarded.
Topicus.com appears to be on a similar trajectory, steadily acquiring new businesses and integrating them into its growing portfolio. The company’s current enterprise value is around €11.8 billion, up significantly from €7.5 billion just a year ago, thus showing how the market is starting to recognize its potential.
One of the most reassuring aspects of Topicus.com as a long-term investment is its low beta of 0.63. This suggests it is less volatile than the broader market. This is important for investors who want exposure to the tech sector without the extreme swings often associated with high-growth stocks. The tech stock’s business model, which revolves around essential enterprise software, also provides a level of resilience in economic downturns. Unlike consumer-facing tech companies that can see demand fluctuate based on economic conditions, Topicus.com’s revenue is largely recurring and contract-based, providing stability even in uncertain times.
Foolish takeaway
For investors considering Topicus.com as a long-term hold, it’s important to recognize that this tech stock is a play on the enduring demand for specialized software solutions. The company’s ability to continuously acquire, integrate, and optimize vertical market software businesses gives it a unique edge in the industry. With strong financial performance, a proven growth strategy, and a business model that prioritizes stability and profitability, Topicus.com is a rare gem in the tech sector – one that offers both growth and resilience.
