The main point of investing for the long term is to make money. Better yet, you'd like to see the share price move up more than the market average. But CoStar Group, Inc. (NASDAQ:CSGP) has fallen short of that second goal, with a share price rise of 70% over five years, which is below the market return. Looking at the last year alone, the stock is up 9.6%.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
There is no denying that markets are sometimes efficient, but prices do not always reflect underlying business performance. By comparing earnings per share (EPS) and share price changes over time, we can get a feel for how investor attitudes to a company have morphed over time.
CoStar Group's earnings per share are down 0.8% per year, despite strong share price performance over five years.
So it's hard to argue that the earnings per share are the best metric to judge the company, as it may not be optimized for profits at this point. Therefore, it's worth taking a look at other metrics to try to understand the share price movements.
On the other hand, CoStar Group's revenue is growing nicely, at a compound rate of 14% over the last five years. In that case, the company may be sacrificing current earnings per share to drive growth.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
CoStar Group is well known by investors, and plenty of clever analysts have tried to predict the future profit levels. So it makes a lot of sense to check out what analysts think CoStar Group will earn in the future (free analyst consensus estimates)
A Different Perspective
CoStar Group shareholders gained a total return of 9.6% during the year. Unfortunately this falls short of the market return. It's probably a good sign that the company has an even better long term track record, having provided shareholders with an annual TSR of 11% over five years. Maybe the share price is just taking a breather while the business executes on its growth strategy. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should be aware of the 1 warning sign we've spotted with CoStar Group .
Of course CoStar Group may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.