CoStar Group Inc (CSGP, Financial) recently experienced a daily loss of 1.6%, yet it boasts a three-month gain of 6.14%. With an Earnings Per Share (EPS) of $0.73, investors might wonder if CoStar Group's current stock price reflects its true value. This analysis delves into whether CoStar Group Inc (CSGP) is fairly valued in the market.
Company Overview
CoStar Group Inc (CSGP, Financial) stands as a leading entity in the realm of commercial real estate data and marketplace listing platforms. The company's extensive data encompasses analytical information on over 5 million properties across various subsectors such as office, retail, and industrial spaces. With flagship brands like CoStar Suite and Apartments.com, CoStar Group has solidified its presence not only in the U.S. but also in Canada, the UK, Spain, and France. More than 80% of its revenue stems from subscription-based services, illustrating a robust recurring revenue model.
Understanding GF Value
The GF Value is a proprietary measure aimed at determining the intrinsic value of a stock. For CoStar Group, this value is set at $90.71, suggesting a close alignment with its current trading price of $86.1. The GF Value is calculated based on historical trading multiples, a GuruFocus adjustment factor reflecting past performance and growth, and anticipated future business performance. This metric indicates that CoStar Group is fairly valued, with potential for the stock price to gravitate around this value.
Given its current market cap of $35.20 billion and considering the GF Value, CoStar Group appears to be trading at a fair price, aligning closely with our valuation metrics. This assessment supports the notion that the long-term return on CoStar Group's stock should mirror the rate of its business growth.
Financial Strength and Stability
Investing in companies with robust financial health is crucial to minimizing the risk of capital loss. CoStar Group's cash-to-debt ratio of 4.46 not only underscores its financial prudence but also ranks well above the industry average, securing a financial strength rating of 8 out of 10 from GuruFocus.
Profitability and Growth Prospects
CoStar Group's consistent profitability over the past decade and its operating margin of 6.42% reflect its capacity to generate earnings robustly. However, the company's growth metrics present a mixed picture. While its average annual revenue growth rate stands impressively at 11.7%, its 3-year average EBITDA growth rate of -3.3% suggests some challenges. Nonetheless, the overall profitability rank of 8 out of 10 signifies a strong capability in maintaining profitability.
ROIC vs. WACC: A Measure of Value Creation
An effective way to gauge a company's value creation is by comparing its Return on Invested Capital (ROIC) against its Weighted Average Cost of Capital (WACC). CoStar Group's ROIC of 3.39, although lower than its WACC of 10.05, raises questions about its efficiency in generating value relative to the capital cost. This aspect might require investor attention for long-term value assessment.
Conclusion
In conclusion, CoStar Group Inc (CSGP, Financial) is assessed as fairly valued based on current metrics and market conditions. The company's strong financial foundation and consistent profitability are promising, although growth and value creation efficiency could be areas for potential improvement. For a deeper insight into CoStar Group's financials and to make an informed investment decision, consider exploring its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
