Fake Blood in the Streets or Justified Caution?
I just spent the last few hours digging into Constellation Software, trying to lift the mystery around how much the recent headlines actually matter. The stock has dropped more than 25% — the biggest sell-off since its IPO. That’s not nothing. The trigger? First, as for many software companies, AI worries entered the room. And then the bombshell of founder and CEO Mark Leonard stepping down for health reasons did the rest. He is undoubtedly a legend in investing circles — the Gandalf lookalike who built Constellation into one of the best compounders of the last two decades. The Constellation he imagined wasn’t like PE funds. Leonard’s brainchild didn’t buy to make a quick buck or fire half the staff to make a turnaround — they invested in niche disruptors for perpetuity.
Besides, the numbers themselves still look attractive. Forward EV/revenue of around 5. Projected revenue growth above 15% for the coming years. As good as no leverage. Strong margins. FCF yield approaching 5%. By almost any metric, this looks like one of those setups I like: proven execution, cheap valuation, and a market reaction that looks more like panic than rational repricing. I’ve said it before: I like to buy when there’s blood in the streets. And right now, Constellation is bleeding heavily.
But here’s the tension: a lot of what made Constellation so exceptional came from Leonard himself. He wasn’t just any president. He was an all-time great capital allocator, one of those rare leaders who built not just a company but a culture of decentralized excellence. His stepping down is significant — you don’t just replace someone like that. Everyone was hoping that he’d stay at the helm for longer in a Warren Buffett style. Though, unfortunately, Gandalf’s beard doesn’t grant Leonard immortality.
On the other hand, maybe that’s exactly the point: the culture is so strong and the model so decentralized that Leonard’s departure might not be as damaging as it first looks. Let’s see what the new president, Mark Miller, has to offer. After all, it’s fair to assume Leonard would choose someone capable to build on his legacy. Let’s not forget, Gandalf choosing Bilbo worked out for the quest of reclaiming the Lonely Mountain. Maybe people are underestimating Miller as much as the dwarfs did Bilbo. Enough of the Lord of the Rings references for now. Constellation is built around hundreds of smaller, niche software businesses, each run with autonomy. The machine keeps running, even without constant input from the top. Leonard’s fingerprints are everywhere in that system, and that gives me some confidence it can continue without him.
And then there’s AI. Could it disrupt Constellation? In theory, yes. But I think the risk is overblown — as with many other formerly loved names, most prominently Salesforce and Adobe. Constellation’s customers are often niche operators without the resources or scale to build software in-house, even with AI making developers more efficient. AI can reduce the time it takes to write code, but it doesn’t replace the expertise, maintenance, or distribution that Constellation provides. Building your own software is still expensive, time-consuming, and for most organizations — risky. Many will find it cheaper and far more reliable to keep buying from Constellation rather than attempt DIY projects that may end up buggy or unusable. Especially for non-tech-native businesses that don’t have the capabilities needed to develop complex programs. That’s not something the plumber’s IT administrator “vibe-codes” in an afternoon session.
So where does that leave me? Honestly, weighing it. On one hand: flawless execution, cheap valuation, and what looks like an overreaction to legitimate but manageable risks. On the other hand: the founder stepping back creates uncertainty that you can’t simply model away. For me, this is the classic setup: buy now and bet that Constellation’s culture carries it forward — or wait and see if this transition shakes the foundation more than expected. However, I am worried that I might miss this opportunity if I don’t buy soon, since the market is pretty quick at recovering nowadays.
One thing is clear: this sell-off won’t go down as just another blip. Either this becomes one of those rare “blood in the streets” buying opportunities (more likely in my opinion), or a reminder that even legends don’t live forever.
$CSU (+3,25%)
