CoStar has gotten torched over the last six months - since October 2025, its stock price has dropped 52.8% to $40 per share. This was partly driven by its softer quarterly results and might have investors contemplating their next move.

Is there a buying opportunity in CoStar, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is CoStar Not Exciting?

Despite the more favorable entry price, we're cautious about CoStar. Here are three reasons you should be careful with CSGP and a stock we'd rather own.

1. 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 2.7% annually over the last five years while its revenue grew by 14.4%. This tells us the company became less profitable on a per-share basis as it expanded.

2. Free Cash Flow Margin Dropping

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

As you can see below, CoStar’s margin dropped by 13.2 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal it is in the middle of an investment cycle. CoStar’s free cash flow margin for the trailing 12 months was 1.3%.

3. New Investments Fail to Bear Fruit as ROIC Declines

A company’s ROIC, or return on invested capital, shows how much operating profit it makes compared to the money it has raised (debt and equity).

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Unfortunately, CoStar’s ROIC has decreased significantly over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Final Judgment

CoStar isn’t a terrible business, but it doesn’t pass our bar. After the recent drawdown, the stock trades at 30.4× forward P/E (or $40 per share). This valuation tells us it’s a bit of a market darling with a lot of good news priced in - we think other companies feature superior fundamentals at the moment. We’d suggest looking at a safe-and-steady industrials business benefiting from an upgrade cycle.

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