12 Best Software Stocks In Canada (Oct 2022): Large And Mid-Cap

Canada has its fair share of software stocks, which gives Canadian investors some very powerful investment options.

If you’re looking to start investing in the dynamic and lucrative software industry, this list of the best software stocks in Canada below can give you some ideas.

What Do You Need To Know About Software Stocks in Canada?

Software stocks dominate the tech sector in Canada. Almost all the coveted tech stocks are technically software stocks, and they make up the bulk of the tech sector.

Here are some of the pros and cons of investing in software stocks in Canada:

Pros
  • Potential of rapid growth
  • Minimal inter-industry correlation. Most software stocks represent companies that are radically different from one another, so some can thrive even while others are failing.
  • They usually have a minimal environmental impact, which is better from an ESG investment perspective.
Cons
  • Software stocks can be quite expensive, especially from a fundamental valuation perspective.
  • They can be volatile, which results in rapid gains but also quick slumps.
  • The chances of disruption and obsoletion are quite high. A radical new technology can make a similar one obsolete, and if you don’t exit the position at the right time, you may book heavy losses.
  • Many software stocks can be difficult to understand for non-tech-savvy investors.

Best Software Stocks In Canada (Large-Cap and Mid-Cap)

1. Shopify Stock

Shopify Stocks
  • Ticker: SHOP.TO
  • Company Niche: E-commerce platform
  • Forward Dividend Yield: N/A
  • Market Cap: $52.82 Billion
  • Forward P/E Ratio: 5.76
  • Average Analyst Rating: 1.7 - Buy

Shopify surpassed Royal Bank of Canada to become the largest Canadian company by market cap in 2020.

Since then, the two companies have traded places multiple times. It’s the largest tech and software stock by far. It’s also the second-largest e-commerce platform in the world, after WooCommerce, and the largest in the US.

Shopify is basically a subscription-based e-commerce platform that allows you to create an online store.

It gives you the tool and connectivity to consolidate everything related to your online store (inventory, sales, invoicing, etc.) in one place, and you can even connect your physical store seamlessly.

It is being used by 1.7 million businesses in 175 countries and has facilitated sales of US$200 billion so far.  

It’s also one of the most powerful growth stocks in the history of TSX. From its inception to its peak in 2021 (less than seven years), the stock grew about 6,000%.

2. Constellation Software Stock

Constellation Software Stock
  • Ticker: CSU.TO
  • Company Niche: Software business acquisition and holding company
  • Forward Dividend Yield: 0.24%
  • Dividend Payout Ratio: 20.31%
  • Dividend Yield (12-Month Trailing): 0.2%
  • Upcoming Dividend Date: Oct 11, 2022
  • Market Cap: $41.29 Billion
  • Forward P/E Ratio: 23.49
  • Average Analyst Rating: 2.2 - Buy

Constellation Software is one of the most consistent growth stocks that have ever traded on the TSX, or at least it has been for the last 18 years since its listing in 2006.

Its growth, since inception to 2021 peak, has been over 12,000%. It’s also the priciest stock on TSX (most of the time) and one of the few companies with a four-digit price tag.

Constellation Software was created by a former venture capitalist with the goal of creating a portfolio of vertical market software companies. The acquisition has been an important part of Constellation ever since its inception and has fueled its growth.

Currently, the company has six operating groups under its banner that cater to dozens of different vertical markets.

Its internal diversification and independence from any particular niche, even within the software industry, make it a significantly safer holding than many other software stocks.

3. OpenText Stock

Open Text Stock
  • Ticker: OTEX.TO
  • Company Niche: Enterprise Information Management Software
  • Forward Dividend Yield: 2.27%
  • Dividend Payout Ratio: 49.34%
  • Upcoming Dividend Date: Sep 23, 2022
  • Market Cap: $10.09 Billion
  • Forward P/E Ratio: 8.48

OpenText is a three-decade-old software company and one of the three dividend aristocrats in the tech sector, although the yield is rarely high enough to become the primary reason to buy this stock.

It’s considered a leader in information management, primarily enterprise information management, and is one of the largest companies of its kind in the world.

With nine out of every ten fortune 100 companies as its clients and hosting 80% of the largest supply chains in the world on its platform, it stands out among its peers.

It’s not as rapid as Shopify or as consistent as Constellation when it comes to growth, but it’s still a reliable growth stock, especially as a long-term holding.

And it’s usually very reasonably priced, which is a stark contrast to most other software stocks. It grew about 5,500% from inception to peak in 2021 (about 14 years).

4. Ceridian HCM Holding Stock

Ceridian HCM Holding Stock
  • Ticker: CDAY.TO
  • Company Niche: Enterprise Human Capital Management (HCM) Software
  • Forward Dividend Yield: N/A
  • Market Cap: $12.95 Billion

Ceridian is the first company on this list that’s based in the US and one of the youngest TSX software stocks (listed in 2018).

It’s built around the flagship software Dayforce, an enterprise Human Capital Management (HCM) software that allows companies to track and consolidate the entire employee lifecycle under one umbrella, including payroll, benefits, HR, etc.

It only controls a small portion of the total HCM market, but it is counted among the ten largest HCM platforms.

It caters to a wide variety of industries, and if we consider the progress it has made so far, the company can grow its market share by a significant margin and climb up the ranks.

The stock grew about 300% from inception to peak in 2021 but compared to others, and even though it’s relatively younger, the growth pace doesn’t match the giants, and it has yet to prove itself about consistency.

5. Descartes Systems Group Stock

Descartes Systems Group Stock
  • Ticker: DSG.TO
  • Company Niche: Logistics Technology Platform
  • Forward Dividend Yield: N/A
  • Market Cap: $8.10 Billion
  • Forward P/E Ratio: 54.9
  • Average Analyst Rating: 2.3 - Buy

While Descartes offers a wide array of solutions, they all connect to the center points of supply chain and logistics.

The company’s Logistics Technology Platform allows its users to connect with hundreds of thousands of logistics organizations in 160 countries and give them the tools to manage their logistics and supply chain more efficiently.

The tools/applications include everything from regulatory compliance to trade intelligence.

It’s counted among the best logistics and supply chain platforms and boasts a powerful network (which is the essence of its growth).

6. Blackberry Stock

Blackberry Stock
  • Ticker: BB.TO
  • Company Niche: End-point security/cybersecurity
  • Forward Dividend Yield: N/A
  • Market Cap: $3.85 Billion
  • Forward P/E Ratio: -31.76
  • Average Analyst Rating: 3.7 - Underperform

Blackberry is on this list simply because it has changed teams. It has been downgraded from one of the most coveted mobile phone manufacturers in the world to a relatively mediocre cybersecurity company.

It lost the smartphone race, but by leveraging its reputation for data security and its proprietary technologies, the company is evolving in other avenues. Most prominent of which are IoT, end-point security, and embedded system software.

The highlight of its current achievements is its QNX software that’s embedded in about 195 million vehicles around the globe.

7. Lightspeed Commerce Stock

Lightspeed Commerce Stock
  • Ticker: LSPD.TO
  • Company Niche: POS and E-commerce  
  • Forward Dividend Yield: N/A
  • Market Cap: $3.95 Billion
  • Forward P/E Ratio: 1328
  • Average Analyst Rating: 2.1 - Buy

Lightspeed was once prophesized to become the next Shopify, but it couldn’t live up to the expectation.

But its growth has been quite incredible, to say the least. Between its inception and peak in 2021, the stock grew over 700% in less than three years.

The company was accessed of beefing up its numbers and portraying an inflated reach by a US-based short-seller firm, which caused the stock to sink quite drastically.

Apart from that blemish, this e-commerce giant is quite attractive. The company has a presence in over a hundred companies, and about 150,000 locations/businesses worldwide use Lightspeed tech.

The company focuses on SMBs and gives them the POS systems (hardware) and service tools (like loyalty tracking) to grow their business.

Unless the customer base thins or becomes stagnant, Lightspeed Commerce will remain a solid software stock for rapid growth potential.

8. Kinaxis Stock

Kinaxis Stock
  • Ticker: KXS.TO
  • Company Niche: Agile Supply Chain Management
  • Forward Dividend Yield: N/A
  • Market Cap: $3.95 Billion
  • Forward P/E Ratio: 68.16
  • Average Analyst Rating: 1.8 - Buy

While it has significant overlap with Descartes, Kinaxis is a very different company. Kinaxis RapidResponse, the agile supply chain management platform, is all about visibility, planning, and decision-making.

The platform allows companies to connect and combine all the elements of their supply chains in one platform, get real-time data, find inefficiencies, foresee problems, and find the right supply chain solutions.

The platform is being augmented by AI as well, and it’s quite promising.

9. Topicus Stock (TSXV)

Topicus Stock
  • Ticker: TOI.V
  • Company Niche: Vertical Market Software And Solution Provider
  • Forward Dividend Yield: N/A
  • Market Cap: $6.14 Billion

The only venture capital software stock on this list is also the youngest. The company, Topicus spun out of Constellation Software in 2021 and became a publicly-traded company.

And while Constellation connects it to Canada, the company is based in Europe. It’s a pan-European vertical market software and platform company that caters to a select group of industries.

So far, the company has served over 100,000 customers in 14 countries and has a presence in most major European countries.

We have yet to see how the stock performs in a normal, healthy market, and if it’s anything like its parent company (Constellation), it’s definitely worth investing in.

10. Dye & Durham Stock

Dye & Durham Stock
  • Ticker: DND.TO
  • Company Niche: Cloud-based Platform For Professionals
  • Forward Dividend Yield: 0.41%
  • Dividend Payout Ratio: 22.06%
  • Dividend Yield (12-Month Trailing): 0.45%
  • Upcoming Dividend Date: Oct 10, 2022
  • Market Cap: $1.12 Billion
  • Forward P/E Ratio: 15.03
  • Average Analyst Rating: 1.8 - Buy

The Dye & Durham platform caters to a wide variety of professionals and institutions, but the most prominent among them are legal and government professionals.

The platform connects the professionals with the right information/data pool (like public records) and makes things easier for them. The set of solutions is different for the different industries it serves.

The company has an international reach, and if it keeps growing its user base, the stock will most likely perform well.

11. Enghouse Systems Stock

Enghouse Systems Stock
  • Ticker: ENGH.TO
  • Company Niche: Enterprise Software Solutions
  • Forward Dividend Yield: 2.23%
  • Dividend Payout Ratio: 39.26%
  • Dividend Yield (12-Month Trailing): 2.44%
  • Upcoming Dividend Date: Nov 30, 2022
  • Market Cap: $1.62 Billion
  • Forward P/E Ratio: 19.8
  • Average Analyst Rating: 2.5 - Buy

Enghouse is the oldest aristocrat in the tech industry and has grown its payouts for almost 14 years.

However, the capital appreciation since inception (1,800% till 2020 peak) is a much more compelling reason to consider investing in this software stock than the yield, which seldom outshines savings rates that banks offer.

The company has two business divisions and four brands under its umbrella, each focusing on different market segments.

12.  Docebo Stock

Docebo Stock
  • Ticker: DCBO.TO
  • Company Niche: Online Learning Platform
  • Forward Dividend Yield: N/A
  • Market Cap: $1.30 Billion
  • Forward P/E Ratio: 0
  • Average Analyst Rating: 1.8 - Buy

Docebo is an exciting software stock built around a technology/service that’s likely to explode in the coming years.

It’s an AI-powered learning platform that primarily caters to the corporate market and is used by companies to train their employees and track their performances (in learning). The platform aims to make learning easier and focuses on knowledge retention.

The Docebo “Learning Suite” is a combination of six different products, all of which work in tandem to deliver the full power of the platform.

The stock grew about 700% in almost two years (from 2019 joining to 2021 peak), and even if it might not be able to continue with that growth pace in the future, its chances of growing at a powerful rate are quite high.

Who Is The Largest Software Company In Canada?

The largest software company in Canada is Shopify, by market capitalization. It most likely has the largest global footprint as well (175 countries).

Largest by revenue and number of employees is Constellation Software, but only if we disregard CGI Inc. from the list of software companies in Canada (which I have, but many people consider it a software company). Otherwise, it wins in revenue and number of employees.

How To Buy Software Stocks In Canada

The cheapest way to buy stocks is from discount brokers. My top choices in Canada are:

Readers Choice
Qtrade
Qtrade
  • 105 commission-free ETFs to buy and sell
  • Excellent customer service
  • Top-notch market research tools
  • Easy-to-use and stable platform 
Low Fees
Wealthsimple Trade
Wealthsimple Trade
  • Stock and ETF buys and sells have $0 trading fees
  • Desktop and mobile trading
  • Reputable fintech company
  • Fractional shares available
Well-Rounded
Questrade
Questrade
  • ETF buys have $0 trading fees
  • Excellent market research tools
  • Most types of registered accounts available

To learn more, check out my full breakdown of the best trading platforms in Canada here.

Conclusion

Best Software Stocks In Canada

The best software stocks in Canada also represent the best of what our tech stock has to offer. Most of these are powerful growth stocks, albeit a bit riskier than many are comfortable with.

However, the upside is far more compelling than the modest fear of the downside, and even that can be controlled, mostly by buying the dip and holding on to the stocks for long enough.

Also, since they are all large or mid-cap software companies, they offer much less volatility than smaller software stocks, yet comparable growth.

However, if software companies are not your pace, you might find more peace of mind in the steady financial sector.

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Author Bio - Christopher Liew is a CFA Charterholder with 11 years of finance experience and the creator of Wealthawesome.com. Read about how he quit his 6-figure salary career to travel the world here.

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