1 Incredible TSX Stock to Buy While Down 40%

A rare dip can change everything. Constellation Software (TSX:CSU) doesn’t go on sale often. For years, this TSX tech giant seemed almost untouchable, climbing higher as investors rewarded its unusual mix of discipline, acquisitions, and steady cash flow. So, when the stock pulls back hard, long-term investors should pay attention.

CSU

Constellation stock recently traded roughly 40% below its 52-week high. That’s a big move for one of Canada’s greatest compounders. The stock still doesn’t look cheap in the bargain-bin sense. It rarely does. But the drop gives investors a chance to consider a world-class Canadian business at a much better price than it commanded not long ago.

Constellation stock buys, holds, and builds vertical market software companies. These businesses usually serve specific industries, such as government, healthcare, construction, education, public transit, or financial services. The software often becomes hard to replace because customers use it for essential daily work. That creates sticky revenue and gives Constellation stock a strong base for long-term growth.

Investors have punished expensive technology stocks. Artificial intelligence (AI) fears also weighed on the sector. Some investors worry AI could disrupt older software businesses or squeeze pricing power. That concern deserves attention, but Constellation stock’s model doesn’t depend on one flashy product. Add in the stepping down of golden boy founder and CEO Mark Leonard, and it’s no wonder shares fell.

Into earnings

The latest quarter reminded investors why this company commands respect. In the first quarter of 2026, revenue climbed 20% year over year to US$3.18 billion. Net income attributable to common shareholders rose to US$367 million from US$136 million last year. The company also declared a US$1-per-share quarterly dividend.

The real engine comes from acquisitions. Constellation stock uses cash flow to buy more software companies, then lets its operating groups run them with a decentralized structure. Management doesn’t chase empire-building for show. It looks for businesses that can earn strong returns over long periods. That simple strategy turned Constellation stock into one of the TSX’s most impressive long-term success stories.

Considerations

The pullback doesn’t erase risks. Valuation still matters. Even after the decline, Constellation stock can look expensive next to slower-growing companies. If growth slows, acquisition returns weaken, or investors lose faith in the model, the stock could fall further. AI also creates uncertainty. Some software niches may face pressure if customers find cheaper or faster tools.

Investors should also remember that Constellation stock’s size makes growth harder. A smaller company can double more easily than a giant. Constellation stock now needs larger deals or many smaller ones to keep moving the needle. That doesn’t mean growth ends, but that investors should use realistic expectations.

Still, this pullback looks more like an opportunity than a warning sign for patient buyers. The business continues to grow. Management continues to deploy capital. Customers continue to rely on specialized software. Meanwhile, the stock now trades far below its peak, giving long-term investors a rare entry point into a premium Canadian company.

Bottom line

For income seekers, Constellation stock won’t replace a bank, utility, or telecom. But for investors who want an incredible TSX stock with serious growth potential, Constellation stock deserves a spot near the top of the watch list. The payout may look small today, but the compounding story looks far bigger. Buying while the stock sits down about 40% could pay off for years.

The post 1 Incredible TSX Stock to Buy While Down 40% appeared first on The Motley Fool Canada.

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Fool contributor Amy Legate-Wolfe has no position in any of the stocks mentioned. The Motley Fool recommends Constellation Software. The Motley Fool has a disclosure policy.