Think about turning a $7,000 funding right into a staggering $2.5 million place, completely inside the tax-free haven of your TFSA. That’s the exceptional actuality for buyers in Constellation Software program (TSX: CSU) inventory over the previous 20 years – a mind-boggling complete return exceeding 36,000%. Whereas replicating that actual feat is likely to be a tall order, a spun-off firm following the identical highly effective blueprint technique may very well be poised for important long-term developmentmaking it a compelling candidate to your personal TFSA. That TSX know-how inventory is Topicus.com (TSXV: TOI), and it’s grabbing severe consideration this week as the highest performer on the TSX’s High Tech 50 checklist.
Topicus.com isn’t simply using a development wave; it’s actively constructing one. Very similar to its former father or mother Constellation Software program, Topicus focuses on buying, managing, and constructing specialised vertical market software program companies – important software program options tailor-made for particular industries. Whereas Constellation conquered North America, Topicus.com is methodically making use of the identical profitable technique throughout numerous markets in Europe. Canadian buyers searching for long-term development inside their TFSA could discover Topicus’s targeted method interesting.
The tech inventory’s early outcomes are promising. Topicus.com spun off from Constellation in early 2021, and early buyers are already sitting on beneficial properties nearing 200%. Extra importantly, the underlying enterprise is firing on all cylinders.
Topicus.com’s first-quarter 2025 outcomes showcased spectacular momentum. Income surged 16% year-over-year to €355.6 million (about $569 million CAD), pushed by strategic acquisitions and a strong 4% natural development fee. Earnings per share jumped an much more spectacular 36.4% to €0.30.
However the actual story, the gas powering Topicus.com’s development engine, is its free money stream (FCF). This significant metric represents the money an organization generates after accounting for working bills and capital expenditures — the precise cash-based revenue accessible for reinvestment, dividends, or debt reimbursement. Topicus generated a staggering €271.4 million in money stream from operations in the course of the first quarter, resulting in free money stream of €161.7 million ($258.8 million CAD), a 21% year-over-year improve.
This torrent of free money stream is the lifeblood of Topicus.com’s development technique. It permits the TSX tech inventory to aggressively pursue acquisitions with out continually needing exterior financing.
For instance, in the course of the first quarter, Topicus.com accomplished acquisitions totaling €39.4 million ($63 million CAD). With quarterly FCF exceeding €161 million, Topicus has the capability to considerably ramp up its deal-making. It might might have quadrupled its acquisition spend simply from the primary quarter FCF alone!
This self-sustaining mannequin is exactly how Constellation constructed its empire. Lengthy-term oriented TFSA buyers could want to examine Topicus.com inventory out earlier than totally deploying their $7,000 contribution room for 2025.
TOI inventory valuation and the Constellation blueprint
To be clear, TOI inventory carries a premium valuation. Its ahead price-to-earnings ratio (P/E) sits round 69, greater than the business common of 52. Nonetheless, trying solely at earnings misses the larger image fueled by money. When you think about its phenomenal money era, Topicus.com inventory appears way more moderately priced. Its price-to-free-cash-flow (P/FCF) a number of is 38.6, considerably cheaper than the North American business common of 66. Equally, its enterprise value-to-free-cash-flow (EV/FCF) a number of of 25 compares very favourably to the business common of 56.
The massive query for TFSA buyers is: Can Topicus.com replicate the outstanding success of Constellation Software program inventory?
The potential for Topicus.com inventory to extensively outperform the TSX is actually there. Topicus nonetheless operates underneath Constellation’s steerage, and it’s utilizing the very same confirmed playbook. The corporate’s core technique of buying important, area of interest software program companies is time-tested. Possibilities of outright failure appear low.
Nonetheless, tempering expectations is prudent. Europe presents completely different market dynamics than North America. Extra crucially, the timing is completely different. Constellation started its acquisition spree 30 years in the past in 1995 and survived the aftermath of the dot-com bust, discovering bargains when tech valuations have been depressed. Topicus is executing its technique within the synthetic intelligence (AI) period, the place software program valuations are usually greater. Whereas the technique is sound, anticipating an equivalent 36,000% return over the following 20 years is probably unrealistic.
TFSA investor takeaway
Topicus.com inventory represents an enchanting alternative for TFSA buyers searching for long-termtax-free compound development. It possesses a strong engine: the confirmed Constellation Software program acquisition technique, now targeted on the European market, and fueled by quickly rising, substantial free money stream. This internally generated money permits the know-how inventory to aggressively fund its personal development, making a probably highly effective compounding impact inside your TFSA.