Last update on 2024-06-06

CoStar Group (CSGP) - Piotroski F-Score Analysis for Year 2023 (Final Score: 5/9)

CoStar Group Inc. (CSGP) receives a Piotroski F-Score of 5/9 for 2023, reflecting its financial health through profitability, liquidity, and efficiency metrics.

Short Analysis - Piotroski Score: 5

We're running CoStar Group (CSGP) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

The Piotroski F-Score is a measure to assess the financial strength of a company, using a scale from 0 to 9, based on 9 criteria related to profitability, liquidity, and operating efficiency. CoStar Group (CSGP) has a Piotroski Score of 5 in 2023. The company delivers a positive net income and cash flow from operations, indicating strong profitability. However, it has a slightly declining Return on Assets (ROA). The leverage ratio has slightly increased, and the current ratio has decreased, signaling a need for deeper assessment of financial stability. The number of outstanding shares has increased, indicating potential dilution for current shareholders. Although the gross margin is high, it has shown a slight decrease. On the positive side, the company's asset turnover ratio indicates improved efficiency.

Insights for Value Investors Seeking Stable Income

With a Piotroski Score of 5, CoStar Group shows a balance of strengths and areas for caution. Positive net income and cash flow are strong points, but declining ROA, increasing leverage, and share dilution are potential red flags. Investors might consider looking into CoStar Group if they're seeking companies with strong cash flow but should be aware of the increasing financial leverage and potential dilution of shares. It's recommended to watch future financial reports closely to see if the company can improve its efficiency and financial stability.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of CoStar Group (CSGP)

Company has a positive net income?

Net Income is the bottom line of a company's financial statement, indicating its profitability. A positive net income is crucial.

For CoStar Group (CSGP), the net income for 2023 is $374.7 million, which is positive, thus adding 1 point based on the Piotroski criterion. This positive trend is reinforcing as the company has consistently posted increasing net profits over the last 20 years, with very few exceptions. The only negative net income was recorded in 2015. Specifically, from a net income of $100,000 in 2003 to $374.7 million in 2023, CoStar Group's performance showcases substantial growth. Such profitability is essential for investors to ascertain the company’s financial health and ability to generate earnings.

Company has a positive cash flow?

Assessing the Cash Flow from Operations is crucial as it indicates a company’s ability to generate sufficient positive cash flow to maintain and grow its operations.

For CoStar Group (CSGP), the Cash Flow from Operations (CFO) for 2023 is reported at $489.5 million, which is positive. This indeed adds 1 point in the Piotroski F-Score analysis for the company. Reviewing the historical trend, CoStar Group has shown a strong and consistent growth in its operating cash flow over the past 20 years. The journey from just $13.55 million in 2003 to $489.5 million in 2023 highlights a substantial and stable upward trajectory. This positive and consistent CFO trend is a strong indicator of the company’s robust operational efficiency and sustainability. Maintaining positive cash flow allows CoStar Group to invest in growth opportunities, manage debt more effectively, and provide returns to shareholders, which are vital for long-term financial health. Therefore, the CFO metric trends positively for CoStar Group in the context of Piotroski analysis.

Return on Assets (ROA) are growing?

ROA, or Return on Assets, is a measure of a company's profitability relative to its total assets, indicating how efficiently a company is using its assets to generate profit.

In 2023, CoStar Group (CSGP) reported a Return on Assets (ROA) of 0.0433, slightly down from 0.0472 in 2022. A declining ROA suggests the company has been less efficient in using its assets to generate profits compared to the previous year, thus not meeting the criterion to add 1 point; rather, it gets 0 points. Historically, over the past 20 years, the company's operating cash flow has shown a steady upwards trend from $13.55 million in 2003 to an impressive $489.5 million in 2023. In contrast, the industry median ROA has been considerably higher, peaking at 0.6319 in 2016, although it has progressively decreased over recent years, settling at 0.4039 in 2023. This comparison evidently showcases CoStar's underperformance relative to its industry peers concerning asset utilization efficiency.

Operating Cashflow are higher than Netincome?

This criterion evaluates whether the company is generating higher cash flows from its operations compared to its net income.

The Operating Cash Flow for CoStar Group (CSGP) in 2023 is $489.5 million, whereas the Net Income is $374.7 million. Since the Operating Cash Flow is higher than the Net Income, this indicates that the company generates robust cash from its business operations, suggesting quality earnings. This is a positive trend and adds 1 point to the Piotroski Score. Over the last 20 years, CoStar Group has seen its Operating Cash Flow increasing significantly from approximately $13.6 million in 2003 to $489.5 million in 2023. Similarly, Net Income has progressed from merely $100K in 2003 to $374.7 million in 2023. This steady upward trajectory in cash flow and net income illustrates the company’s strong operational performance and efficient management.

Liquidity of CoStar Group (CSGP)

Leverage is declining?

Change in leverage assesses whether a company's debt relative to its equity has increased or decreased compared to the previous year. For healthy financial performance, a decrease in leverage is often preferred, implying better financial stability.

The leverage ratio for CoStar Group (CSGP) has increased from 0.1273 in 2022 to 0.12 in 2023. Historically, the company's leverage has been variable, peaking around 0.1752 in 2014 and dropping to nearly zero in some years like 2015 and 2003. However, the slight increase in leverage from 2022 to 2023 shows a shift towards higher debt levels relative to equity, which may be seen as a negative trend for investors looking for a decreasing leverage ratio. Hence, for the Piotroski analysis, this would contribute 0 points.

Current Ratio is growing?

Change in Current Ratio compares a company's ability to cover its short-term liabilities with its short-term assets over two periods. It's crucial as it reflects liquidity.

The Current Ratio for CoStar Group (CSGP) has decreased from 13.9144 in 2022 to 12.0143 in 2023. While this marks a decline, it's essential to consider that a Current Ratio above 1 indicates good liquidity. CoStar's ratio, though decreased, is still remarkably higher than the industry median of 1.6881 for 2023. Historically, this company has maintained a significantly high ratio, exceeding the industry norm. The overall trend over the last two decades shows fluctuations but consistently robust liquidity compared to peers. Given CoStar's current 2023 ratio, this decrease may warrant closer monitoring yet may not immediately signify a liquidity crisis. Therefore, no point is added in this context.

Number of shares not diluted?

Change in the number of outstanding shares indicates whether a company is issuing new shares or buying back existing shares.

From 2022 to 2023, CoStar Group's outstanding shares increased from 396,300,000 to 405,300,000. This increase of 9,000,000 shares (~2.27%) suggests that the company may have issued additional shares. Such an increase usually indicates that the company is raising capital, often for expansion or addressing financial needs; however, it can dilute the ownership value for existing shareholders. Reviewing the historical trend, CoStar has consistently increased its outstanding shares over the last two decades, except for marginal decreases in 2018 and 2019. This trend of increasing shares, with only slight reductions, might indicate a strategic approach focused on growth and capital accumulation, but it comes with potential dilution-related risks for investors.

Operating of CoStar Group (CSGP)

Cross Margin is growing?

Change in Gross Margin measures the change in the percentage of revenue remaining after accounting for the cost of goods sold compared to a previous period.

The Gross Margin for CoStar Group (CSGP) in 2023 was 0.7998, which is a slight decrease from the 0.8103 in 2022. This reflects a negative trend as the Gross Margin has declined year-on-year. The trend over the last 20 years shows a general increase in Gross Margin, with the Gross Margin 2021 to 2022 experiencing a slight drop as well (from 0.8163 to 0.8103). Nevertheless, CoStar Group’s gross margin is still significantly above the industry median, which fell from 0.4314 in 2022 to 0.4039 in 2023. Despite the slight decline, the company's Gross Margin is considerably better than industry peers, demonstrating strong financial health. In this criterion of Piotroski Analysis, the score would be set to 0 since the Gross Margin did not increase year-over-year.

Asset Turnover Ratio is growing?

Asset Turnover measures the efficiency of a company's use of its assets to generate sales or revenue. It is important because it indicates how well a company is utilizing its assets to produce revenue.

Comparing the Asset Turnover of 0.2835 in 2023 with 0.2787 in 2022, we observe an increase. This slight yet positive change signifies improved efficiency in utilizing assets to generate revenue. Although the increment is minor, it is a positive indicator, thereby earning CoStar Group 1 point for this criterion. Historical data reveals a downward trend over the last 20 years, peaking in the early 2000s and gradually declining until a recent minor upturn. This ongoing trend of improved efficiency, albeit slight, is crucial in a mature company's efforts to streamline operations and optimize asset utilization.