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Is CoStar Group, Inc. (NASDAQ:CSGP) As Strong As Its Balance Sheet Indicates?

Simply Wall St

With a market capitalization of US$18b, CoStar Group, Inc. (NASDAQ:CSGP) is a large-cap stock, which is considered by most investors as a safe bet. Common characteristics for these big stocks are their strong balance sheet and high market liquidity, which means there's plenty of stocks available to the public for trading. These firms won’t be left high and dry if liquidity dries up, and they will be relatively unaffected by rises in interest rates. Using the most recent data for CSGP, I will determine its financial status based on its solvency and liquidity, and assess whether the stock is a safe investment.

See our latest analysis for CoStar Group

Does CSGP face the risk of succumbing to its debt-load?

A debt-to-equity ratio threshold varies depending on what industry the company operates, since some requires more debt financing than others. As a rule of thumb, a financially healthy large-cap should have a ratio less than 40%. For CoStar Group, investors should not worry about its debt levels because the company has none! This means it has been running its business utilising funding from only its equity capital, which is rather impressive. Investors' risk associated with debt is virtually non-existent with CSGP, and the company has plenty of headroom and ability to raise debt should it need to in the future.

NasdaqGS:CSGP Historical Debt, April 16th 2019

Can CSGP pay its short-term liabilities?

Given zero long-term debt on its balance sheet, CoStar Group has no solvency issues, which is used to describe the company’s ability to meet its long-term obligations. However, another measure of financial health is its short-term obligations, which is known as liquidity. These include payments to suppliers, employees and other stakeholders. Looking at CSGP’s US$154m in current liabilities, it seems that the business has been able to meet these obligations given the level of current assets of US$1.2b, with a current ratio of 7.87x. The current ratio is the number you get when you divide current assets by current liabilities. Having said that, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.

Next Steps:

CSGP has zero debt as well as ample cash to cover its short-term commitments. Its strong balance sheet reduces risk for the company and shareholders. I admit this is a fairly basic analysis for CSGP's financial health. Other important fundamentals need to be considered alongside. I suggest you continue to research CoStar Group to get a better picture of the stock by looking at:

  1. Future Outlook: What are well-informed industry analysts predicting for CSGP’s future growth? Take a look at our free research report of analyst consensus for CSGP’s outlook.
  2. Valuation: What is CSGP worth today? Is the stock undervalued, even when its growth outlook is factored into its intrinsic value? The intrinsic value infographic in our free research report helps visualize whether CSGP is currently mispriced by the market.
  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.