CoStar (CSGP): Buy, Sell, or Hold Post Q1 Earnings?

CoStar has been treading water for the past six months, recording a small return of 4.4% while holding steady at $79.78.

Is now the time to buy CoStar, or should you be careful about including it in your portfolio? See what our analysts have to say in our full research report, it’s free.

Why Is CoStar Not Exciting?

We're sitting this one out for now. Here are three reasons why there are better opportunities than CSGP and a stock we'd rather own.

1. Shrinking Adjusted Operating Margin

Adjusted operating margin is one of the best measures of profitability because it tells us how much money a company takes home after subtracting all core expenses, like marketing and R&D. It also removes various one-time costs to paint a better picture of normalized profits.

Looking at the trend in its profitability, CoStar’s adjusted operating margin decreased by 23.7 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 8.8%.

2. EPS Trending Down

We track the long-term change in earnings per share (EPS) because it highlights whether a company’s growth is profitable.

Sadly for CoStar, its EPS declined by 4% annually over the last five years while its revenue grew by 14%. This tells us the company became less profitable on a per-share basis as it expanded.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, CoStar’s margin dropped by 16.6 percentage points over the last five years. Continued declines could signal it is in the middle of an investment cycle. CoStar’s free cash flow margin for the trailing 12 months was negative 1.1%.

Final Judgment

CoStar isn’t a terrible business, but it isn’t one of our picks. That said, the stock currently trades at 74.3× forward P/E (or $79.78 per share). This multiple tells us a lot of good news is priced in - you can find better investment opportunities elsewhere. We’d suggest looking at one of our all-time favorite software stocks.

Stocks We Would Buy Instead of CoStar

The market surged in 2024 and reached record highs after Donald Trump’s presidential victory in November, but questions about new economic policies are adding much uncertainty for 2025.

While the crowd speculates what might happen next, we’re homing in on the companies that can succeed regardless of the political or macroeconomic environment. Put yourself in the driver’s seat and build a durable portfolio by checking out our Top 5 Strong Momentum Stocks for this week. This is a curated list of our High Quality stocks that have generated a market-beating return of 183% over the last five years (as of March 31st 2025).

Stocks that made our list in 2020 include now familiar names such as Nvidia (+1,545% between March 2020 and March 2025) as well as under-the-radar businesses like the once-small-cap company Comfort Systems (+782% five-year return). Find your next big winner with StockStory today.