High inflation and general economic uncertainty have sent most stocks sinking this year. Growth tech stocks have been hit especially hard, with some falling as much as 80%. But not all stocks are feeling the same pressures.
The real estate tech giant CoStar Group (CSGP 0.10%) just reported impressive third-quarter earnings, causing its stock price to jump by double-digits last week. Year to date, the real estate stock is up 1.9% while the S&P 500 is down 22%.
If you're on the hunt for a growth stock that has room to run, here's why CoStar Group may be for you.
Fueling record earnings
CoStar Group is a real estate data, online marketplace, and analytics provider. The company owns some of the largest online real estate marketplaces for residential, commercial, and rental properties like Apartments.com, Ten-X.com, and Loopnet.com, along with 20 other websites.
The company's revenue is mostly fee-based; it earns income from bookings on its various marketplaces and subscriptions for its data and analytics services. Unlike other hot tech stocks today, CoStar Group's business model has been proven through consistent earnings and an impressive track record of growth.
Since going public in 1998, the company has generated a 20% total annualized return, which is more than three times that of the S&P and not too far behind Amazon's 22% return during that same period.
Costar Group's sustained growth has been driven primarily by company acquisitions. Most recently, these include French real estate news service Immo.com and residential listing platforms HomeSnap.com and Homes.com. Ten-X, a distressed real estate auction platform, and Apartments.com are the two marketplaces fueling its record earnings.
Q3 2022 earnings were fantastic, beating analysts' expectations and prompting the company to raise its full-year projections once again. Its non-GAAP net income rose by 19% while its revenue grew by 12%. This is thanks to a 62% increase in bookings from last year, with sales for Apartments.com exceeding $90 million net bookings, a record level for the website.
So what?
The impressive Q3 results didn't go unnoticed. The shares rose 9% after the results were announced, and based on the company's increased full-year forecast, it expects Q4 will be just as strong.
CoStar Group is in the process of expanding its campus in Richmond, Virginia. The development will give the company over 1 million square feet of office, retail, and mixed-use space combined, and is projected to bring another 2,000 jobs to the area. An expansion of this size could be seen as a vote of confidence for CoStar Group's continued growth in the coming years.
With more than $4.7 billion in cash on hand, CoStar Group is highly liquid, having enough to pay off all its debt and still have $3.2 billion left over. A liquidity position like that gives the company plenty of room for expanding its existing businesses or acquiring more companies.
But aside from its potential for continued growth, there's a lot to be said about its current operations. It consistently reports a strong earnings before interest, taxes, depreciation, and amortization (EBITDA) margin of between 24% and 33%. Amazon's EBITDA margin hasn't gone above 16% in the past five years. CoStar Group's liquidity and high profit margin give the company a large buffer to withstand hardships that could follow a recession.
The stock now trades for about 65 times its projected full-year earnings, a multiple that indicates it's rather richly valued.
But I believe the company has plenty of room to continue delivering double-digit growth in the near future. Those looking for a solid growth stock to help combat the bear market should consider CoStar Group.
