Title: Mohnish Pabrai on Constellation Software's valuation, management quality and organic growth. $CSU.TO
Show: The Value Vault by Raj (YouTube clip)
Guest: Mohnish Pabrai (Pabrai Investment Funds / Junoon)
Date: 2026-06-10
URL: https://youtu.be/4DaPAZJr9To
Length: 3:49
Note: Short Q&A clip — how to value Constellation Software (CSU.TO) and his top two management teams.

(00:00) Next question. How do you value Constellation given its premium multiple of PE above 40 before the recent drop? And it's very different organic versus acquisition driven growth rates. So, I think that when um when you look at Constellation uh looking at its PE uh would not be the correct way to look at the business.
(00:29)  They have a lot of non-cash goodwill charges etc. that are running through uh the P&L and and such which really distorts uh the true economics of the business. Better off looking at the free cash flow generation of the company. And when I looked at the the free cash flow multiple we were playing uh and in buying into Constellation is extremely attractive.
(00:57)  It's nowhere near 40 times or even 20 times for that matter. And uh the second is that uh Constellation, I think the way to look at it is that if this was a business uh if you looked at just the organic growth of the business um just ignoring the acquisitions for a for a minute. Uh the business is organically historically grown about 3% a year.
(01:25) And we have no reason to believe that it would organically grow less than 2 or 3% a year. So, what is a business uh that is going to grow cash flows, you know, 2 3 4% a year? Uh what kind of multiple should that business trade at? And I would argue that uh of course it depends on interest rates, but at current interest rates um probably something like 10 times cash flow might be too low and maybe 15 or 17 times cash flow might be a tad high.
(02:02)  So, somewhere in there in the middle of that is if they had just this organic growth. But, they have this second engine, which is they are able to take the cash they generate and after the tweaks they're able to make to the acquired businesses, they're effectively buying these businesses at four or five times cash flow, maybe even less.
(02:25) And uh and and so, you know, that is um a reinvestment rate of your cash flows at 20 to 25% uh which is wonderful. Uh so, when you put it together with their um organic sta- stable businesses and adding to it these um these inorganic growth engines, uh it makes it a very good business, and so that's why we like it.
(02:55) If you had to pick the top two management teams or individuals across the current portfolio, who would they be? Well, that's a very difficult question. I actually enjoyed that question. Kind of a fun question cuz I don't know I thought about that. The first uh one is easy, that'll be Constellation.
(03:16)  I think Constellation just has just the most kick-ass DNA and business culture and all of that. I think they're very shareholder oriented, etc. Very disciplined on return of capital and you know, they're they're generating high ROEs and all that. The second one was more challenging for me to figure out, but I would say if you put a gun to my head, I would say something like Caspi, uh just based on the track record, uh would be a good number two in terms of the quality of the of the people and what they've done.
(03:48) Um