Investors seeking to preserve capital in a volatile environment might consider large-cap stocks such as CoStar Group Inc (NASDAQ:CSGP) a safer option. Risk-averse investors who are attracted to diversified streams of revenue and strong capital returns tend to seek out these large companies. However, the health of the financials determines whether the company continues to succeed. This article will examine CoStar Group’s financial liquidity and debt levels to get an idea of whether the company can deal with cyclical downturns and maintain funds to accommodate strategic spending for future growth. Note that this commentary is very high-level and solely focused on financial health, so I suggest you dig deeper yourself into CSGP here. See our latest analysis for CoStar Group
How much cash does CSGP generate through its operations?
CSGP has sustained its debt level by about US$338.34M over the last 12 months made up of current and long term debt. At this constant level of debt, CSGP currently has US$567.22M remaining in cash and short-term investments , ready to deploy into the business. Additionally, CSGP has generated cash from operations of US$195.94M in the last twelve months, leading to an operating cash to total debt ratio of 57.91%, signalling that CSGP’s debt is appropriately covered by operating cash. This ratio can also be interpreted as a measure of efficiency as an alternative to return on assets. In CSGP’s case, it is able to generate 0.58x cash from its debt capital.
Can CSGP meet its short-term obligations with the cash in hand?
With current liabilities at US$154.95M, it seems that the business has been able to meet these obligations given the level of current assets of US$627.49M, with a current ratio of 4.05x. Though, a ratio greater than 3x may be considered as too high, as CSGP could be holding too much capital in a low-return investment environment.
Does CSGP face the risk of succumbing to its debt-load?
With debt at 17.33% of equity, CSGP may be thought of as appropriately levered. This range is considered safe as CSGP is not taking on too much debt obligation, which can be restrictive and risky for equity-holders. We can test if CSGP’s debt levels are sustainable by measuring interest payments against earnings of a company. A company generating earnings after interest and tax at least three times its net interest payments is considered financially sound. In CSGP’s case, the ratio of 19.17x suggests that interest is amply covered. Large-cap investments like CSGP are often believed to be a safe investment due to their ability to pump out ample earnings multiple times its interest payments.
CSGP has demonstrated its ability to generate sufficient levels of cash flow, while its debt hovers at a safe level. In addition to this, the company exhibits proper management of current assets and upcoming liabilities. Keep in mind I haven’t considered other factors such as how CSGP has been performing in the past. I recommend 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.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.