What a wild week on the markets. Although we only saw a small setback on the major indexes, we saw many high-valuation high-beta plays take an absolute beating.
If you were investing in 2021, you probably remember a similar situation. Under the surface, a lot of popular speculative stocks got decimated while the overall markets bent, but certainly didn’t break. Rapid inflation would ultimately cause a bear market in 2022, but you probably get my point.
If you owned high-quality companies trading at reasonable valuations, you probably didn’t feel as much heat last week.
I know a week like this will inevitably come with questions from members in regards to a market crash/correction.
My answer remains the same today as it has been every other time this has been asked. It is impossible to predict where the markets will be over the next week, month, or even year.
What we can predict with reasonable accuracy is where the markets will be in a decade from now. For that reason, I would stress to members that whether the markets go down (or up) by 10%, 20%, 30%, focus on the long-term. It makes situations like this easier to handle mentally.
As the late Charlie Munger once said:
“If you can’t handle a 50% drop, you’re not fit to be a common shareholder and you deserve the mediocre result you’re going to get”
It is a harsh statement, but true.
With that said, Munger is speaking on high-quality companies. There are plenty of stocks that fall by 50% or greater that never recover in price. This is precisely why I run Stocktrades Premium. To help investors like you find the high-quality compounders and avoid the low-quality traps.
In this week’s newsletter, I’m going to cover some companies I know Premium members will be interested in, primarily because I have either been adding aggressively to them in 2025, or they have been value calls.
Of note, in terms of moves on the week, all I did was add to my Constellation Software (TSE:CSU) position.
Earnings
Constellation Software (TSE:CSU)
Constellation Software, at least thus far, has shown zero indication that AI is going to be a headwind for the business. However,
Revenue increased 16% year over year and free cash flow to shareholders increased by 46%. This was the largest quarter in the company’s history when it comes to free cash flow generation.
The results reflect what Constellation does best, which is acquire, integrate, and scale vertical-market software businesses with surgical precision.
Organic growth came in at 5% for the quarter, and only 3% for the year to date when adjusted for foreign exchange. These are certainly lower levels of organic growth than we’re used to. However, it is also only a single quarter, and I’m going going to draw any conclusions from it.
Recurring revenue climbed 17% and continues to account for more than 75% of the company’s revenue. License and hardware sales also posted healthy gains, though they remain small contributors to the overall revenue mix. Make no mistake about it, recurring revenue is what you want to see trending upwards here. Growth in the other segments is nice, but recurring is what moves the needle.
On the expense side, costs were well managed, rising 14% against 16% revenue growth. This is in contrast to its spinoff, Topicus, which reported larger expenses than revenue growth.
Earnings jumped to $9.89, but the year-to-date figure of $18.96 is down from $21.04 a year ago. For a company as acquisition heavy and accounting-complex as Constellation, these earnings figures will confuse you more than they’ll help. Free cash flow is what you want to focus on.
Free cash flow available to shareholders rose to $529 million, up nearly 50% from last year, and operating cash flow crossed $685 million. As mentioned, this was the highest quarter of free cash flow generation for the company in its history, and despite taking a 30%+ hit to its share price over the last while, is not showing any sort of headwinds in its results.
Constellation deployed $281 million in cash on acquisitions, with total consideration including earnouts and deferrals sitting at $415 million. This pace isn’t record-breaking, they’ve certainly had much bigger quarters. But it’s consistent with their measured, long-game approach. The pipeline appears healthy, and management shows no sign of abandoning their disciplined acquisition strategy despite a very tough market.
The main benefit of potential AI headwinds is the fact that it could very well bring down valuation multiples for vertical market software companies, which could be a large tailwind for Constellation.
For shareholders, the takeaway from this quarter should be that we have not witnessed any sort of impact to the business yet from artificial intelligence. However, what shareholders also need to understand is that the market will not forget about the potential disruption from AI just because of a single good quarter.
It will need to put up steady results for quite some time to alleviate fears. If you’re banking on a quick rebound for this one, you likely won’t be happy.
However, if you’re excited to accumulate one of the best compounders in North America at a 30%~ discount for the next while here, knowing that returns are primarily made over the long-term, you’re going to be very happy.
Boyd Group Services (TSE:BYD)
Boyd’s recent quarter is a strong signal a turnaround in the auto market may be well underway, and the thesis is certainly well in motion.
Revenue grew 5% year-over-year to $790 million, driven by a return to positive same-store sales at +2.4%, Boyd’s first comparable sales gain in quite some time. Last quarter the company had mentioned that it was likely same store sales would finally turn positive, and they did.
More importantly, the company is mentioning that momentum is continuing into the current quarter and that it should be stronger than Q3. This gives me the impression they will get back to their long-term targets of 3-5% same store sales growth.
The backdrop helped, as industry headwinds that have plagued it for years eased. Repairable claims volumes improved sequentially, used car values stabilized, and insurance premium inflation began moderating.
Management mentioned that major carriers are starting to lower premiums in key markets like Florida, which they expect will improve consumer coverage levels and ultimately support higher claims frequency. All signs suggest the demand bottom is in, and that Boyd is turning the corner.
Margin expansion also stood out as a major win. Adjusted EBITDA jumped 22.8% to $98.4 million, with margins expanding 170 basis points to 12.4%. Keep in mind, the chart below would be non-adjusted margins, but what matters is the trend.
And keep in mind, the only adjustments Boyd makes to its EBITDA is acquisition-related expenses. There are very few adjustments.
Margin expansion was fueled by a few things. Improved parts margins, internalization of scanning and calibration services, and continued progress on Project 360, Boyd’s cost transformation program.
That initiative has already delivered $30 million in annualized savings, and management reaffirmed its trajectory toward $70 million by 2026 and $100 million by 2029. The margin narrative here is no longer a theoretical concept thrown around by Boyd. It’s starting to show up in the numbers.
But the headline from the quarter wasn’t in the core results. It happened just before the company reported earnings, and it was the announced acquisition of Joe Hudson’s Collision Center, a 258-location company with strong margins and a large footprint across the U.S. Southeast.
I’ve attached an image below of their locations.
Boyd has long said it would wait patiently for the right large-scale deal, and Joe Hudson checked every box for them. The $1.3 billion deal, is expected to deliver $35–$45 million in synergies, with over half realized in the near term and the rest by 2028.
With Joe Hudson historically operating at ~14.4% margins, the acquisition not only adds scale but is also margin accretive. This should push Boyd’s consolidated margin profile closer to its own five-year 14% target faster than expected.
The company is planning to fund the acquisition via some share offerings in the US, which will now make it listed on US markets. Leverage ratios have ticked up higher, but the company sees a path back to normal ratios by the end of 2026.
Outside of the Joe Hudson acquisition, network growth remains steady. Boyd added 24 new locations, 17 from tuck-in acquisitions and seven start-ups, including its first entry into Nova Scotia.
There was a drastic shift in tone from management on the call. They now seem upbeat and optimistic, whereas in the last few years it was clear that industry headwinds was weighing on the company. If the next 12 months deliver on same-store growth, margin improvement, and Hudson integration, Boyd could be entering a multi-year stretch of operating leverage.
WSP Global (TSE:WSP)
What stood out this quarter for WSP certainly wasn’t explosive growth, but it was flawless execution across a highly diversified portfolio. The company is showing exceptional cost control, and early returns from recent M&A bets are amplifying results.
My main inclusion of companies like WSP Global and Toromont Industries is a ramp up in infrastructure expansion from government bodies. If you paid attention to the budget here in Canada, there is one thing you’ll notice: It’s spend, spend, spend. Which ultimately helps these companies.
Adjusted EBITDA hit a record $700 million, up 20% YoY, with margins of 20.2%, an all-time high as well.
Free cash flow hit $887 million through the first nine months, up an impressive $645 million YoY.
The company’s backlog is rock-solid, growing double digits to $16.4 billion, or roughly 11 months of revenue.
Despite adjusting for last year’s outsized U.S. storm response projects, organic revenue growth remained in the mid-single digits across most regions.
The Canadian business continues to lead, delivering 6% organic growth and an outstanding 27.8% margin. The backlog in Canada grew 15% year-to-date, helped by infrastructure wins like the Eglinton Crosstown West extension. WSP’s local positioning and project mix not only making it the industry leader in Canada, but also one of the most profitable in the industry as well.
When we look to the Americas, the segment came in at 6.6% organic growth, with margins of 22.3%. So although this segment isn’t as profitable as it’s Canadian arm, it’s growing faster which certainly helps.
A major highlight was POWER Engineers, a company WSP acquired not too long ago. It posted mid-teens growth and is now a clear margin contributor. One year post-acquisition, POWER is proving to be a textbook example of WSPs outstanding acquisition strategy.
Europe delivered a strong quarter with 6.4% organic growth. WSP’s leadership in the region is translating into growing market share and backlog momentum, particularly in smaller areas like Sweden. The company is not nearly as profitable in Europe, with margins coming in just above 15%, but as it gains a stronger foothold in the area, margin improves should follow.
I’ve mentioned this a few quarters in a row now, but it’s Asia Pacific segment is still in recovery mode. APAC saw a 3.9% organic revenue reduction, although New Zealand returned to growth after five quarters of declines. Australia is lagging but showing signs of backlog improvement. The real story here is margins. Once this area of the business can turn around, the results should be meaningful as APAC has 23% margins.
Ricardo, WSP’s newest acquisition, closed in early Q4 and will begin contributing this quarter. It looks like WSP continues to eye North America and key verticals like power, water, and rail for future acquisitions. With leverage ratios at only 1.4x and free cash flow generation at record levels, I do not think we’ve seen the last of WSP in terms of deals.
The company raised the lower end of its 2025 guidance, now calling for $13.8–$14.0 billion in net revenue and $2.54–2.56 billion in adjusted EBITDA. The tone on 2026 was cautiously optimistic. While the macro environment remains rough, the backlog is healthy, win rates are improving, and management expects more capital deployment from clients if uncertainty eases.
Overall, it was a great quarter and I’m still very bullish on WSP moving forward. It is an industry leader in terms of project wins and profitability.
