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Rating Change Detail - CONSTELLATION SOFTWARE INC. (CSU) - 2/13/2013
The stock was upgraded from No Interest to Some Interest on 2/13/2013 by the P/E/Growth Investor Strategy based on the principles of Peter Lynch. The score according to this strategy rose from 56% to 74%. A full detailed analysis of CSU using this strategy is included below. For a full detailed analysis of CSU using 12 proven strategies of Wall Street Legends, take a free trial to Validea.ca

Detailed Analysis of CONSTELLATION SOFTWARE INC. (CSU)

Strategy: P/E/Growth Investor - Based on: Peter Lynch

DETERMINE THE CLASSIFICATION:

This methodology would consider CSU a "fast-grower".

P/E/GROWTH RATIO: [PASS]

The investor should examine the P/E (39.98) relative to the growth rate (105.18%), based on the average of the 3 and 4 year historical eps growth rates, for a company. This is a quick way of determining the fairness of the price. In this particular case, the P/E/G ratio for CSU (0.38) is very favorable.

SALES AND P/E RATIO: [PASS]

For companies with sales greater than $300 million, this methodology likes to see that the P/E ratio remain below 40. Large companies can have a difficult time maintaining a growth high enough to support a P/E above this threshold. CSU, whose sales are $833.0 million, needs to have a P/E below 40 to pass this criterion. CSU's P/E of (39.98) is considered acceptable.

INVENTORY TO SALES: [PASS]

When inventories increase faster than sales, it is a red flag. However an increase of up to 5% is considered bearable if all other ratios appear attractive. Inventory to sales for CSU was 6.34% last year, while for this year it is 5.12%. Since inventory to sales has decreased from last year by -1.22%, CSU passes this test.

EPS GROWTH RATE: [FAIL]

This methodology favors companies that have several years of fast earnings growth, as these companies have a proven formula for growth that in many cases can continue many more years. This methodology likes to see earnings growth in the range of 20% to 50%, as earnings growth over 50% may be unsustainable. The EPS growth rate for CSU is 105.2%, based on the average of the 3 and 4 year historical eps growth rates, which is considered too fast.

TOTAL DEBT/EQUITY RATIO: [PASS]

This methodology would consider the Debt/Equity ratio for CSU (54.30%) to be mediocre. If the Debt/Equity ratio is this high, the other ratios and financial statistics for CSU should be good enough to compensate.

FREE CASH FLOW: [NEUTRAL]

The Free Cash Flow/Price ratio, though not a requirement, is considered a bonus if it is above 35%. A positive Cash Flow (the higher the better) separates a wonderfully reliable investment from a shaky one. This methodology prefers not to invest in companies that rely heavily on capital spending. This ratio for CSU (6.59%) is too low to add to the attractiveness of the stock. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

NET CASH POSITION: [NEUTRAL]

Another bonus for a company is having a Net Cash/Price ratio above 30%. Lynch defines net cash as cash and marketable securities minus long term debt. According to this methodology, a high value for this ratio dramatically cuts down on the risk of the security. The Net Cash/Price ratio for CSU (-2.48%) is too low to add to the attractiveness of this company. Keep in mind, however, that it does not adversely affect the company as it is a bonus criteria.

For a full detailed analysis of CSU using 12 proven strategies of Wall Street Legends,
take a free trial to Validea.ca

Rating Change Detail - CONSTELLATION SOFTWARE INC. (CSU) - 2/13/2013

Detailed Analysis of CONSTELLATION SOFTWARE INC. (CSU)

Strategy: P/E/Growth Investor - Based on: Peter Lynch