Canadian Software Stock Soars More than 800%: Top 10-Year Performers

Find out how Enghouse Systems Limited (TSE:ESL) grew successfully through acquisitions without shareholder dilution

SmallCapPower | April 27, 2016: Few companies exemplify a new-economy success story more than Enghouse Systems Limited (TSE:ESL). Through its strategic acquisition strategy, the software firm has generated double-digit growth in revenue and dividends during the past five years.

Who said ‘buy and hold’ is dead? SmallCapPower.com takes a look at some Canadian companies that have rewarded patient investors that have held its shares over the past decade. Examining what has made these companies successful will hopefully help one find the next big winning stock for their portfolio. All share price returns represent cumulative 10-year percentage gains as of November 22, 2015.

Enghouse Systems Limited (TSE:ESL): 811.1% Stock Price Appreciation

Enghouse purchases and manages software used for billing and logistics in sectors such as energy, transportation, and utilities. In addition, it utilizes customer service software, such interactive voice response systems, for financial services and health care customers.

Much like the other top-performing stocks during the past decade, Enghouse grew both organically and by consolidating what has been a fragmented sector. In 2014, for example, the Company made five acquisitions to expand its geographic reach into new markets across Europe and Latin America. And in 2015, it purchased eight related businesses. The Company’s acquisition strategy has been to target businesses in the $5 million to $50 million annual revenue range, preferably with strong recurring revenue, and cash payback within five to six years.

Most importantly, Enghouse doesn’t issue stock to make these acquisitions. The Company has just 26,812,962 outstanding common shares (as of April 12, 2016), and recently announced its intention to buy back more of its stock.

If investors learned anything about Microsoft, it’s that software can be a high-margin business due to licensing fees that can be collected for years. To that end, Enghouse has seen its total revenue grow at a Compound Annual Growth Rate (CAGR) of 17.8%, its recurring revenue rise at an 18.2% CAGR, and its dividend per share increase at a 19.6% CAGR during the past five years. The Company also announced recently that it would be increasing its quarterly dividend by 17% in 2016.

Looking for the next Enghouse Systems? In a recent SmallCapPower interview, Jason Donville compared TIO Networks Corp. (CVE:TNC) to Enghouse. Find out what the two companies have in common by watching the video >>

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