Homes.com Wont Overshadow CoStar Forever

Thesis Statement

Maintaining the largest apartment rental real estate marketplace network and the premier provider of real estate information and analytics, Costar Homes’ stock looks meaningfully discounted. CSGP is down 50.98% YTD due primarily to aggressive spending on Homes.com, which created numerous uncertainties around future sustained growth and short-term margin health. This market speculation is tied to short-term concerns, and represents nothing about the underlying business qualities of CSGP, which remain strong.

Market Dislocation

Investors as a whole did not like the long-term costly bet into Homes.com, as CSGP has invested around $1 billion into the real estate company. CoStar expects to reach net profitability in Homes.com by 2029, prioritizing long-term sustainable growth. The market has priced in significant short-term risk due to those expenditures, as shown with the company’s removal from the Nasdaq-100, leading to mass selloffs from passive index funds, ETFs, and fund managers. CSGP also faces significant headwinds from the macro-environment for commercial and residential real estate remaining highly uncertain. These macro fears have created the conditions for a sizable discount for long-term investors to take advantage of a large gap between the intrinsic value of CSGP and its overly beaten-down market price. Notably, management has taken advantage of the stock price at the moment, with CEO Andy Florence bought 71,430 shares in open-market transactions on May 1–2, 2026, for about $2.51 million total, indicative of management's confidence in the long-term profitability of the company.

Valuation

CSGP trades at a forward PE of 22.02x, with a PEG ratio of 0.56 and a price-to-sales ratio of 3.84x, compared to a five year historical P/S of 12.87. EV/EBITDA sits at 48.12x, compared to a five year average of 97.87x. Revenue growth remains strong within the company, seeing 22.54% revenue growth YOY as of Mar 31, 2026, above recent quarterly averages. Gross margins have slightly tailed off within the past five years, but remain strong at 78.64%, outperforming typical consumer-facing real estate portals or other residential real-estate firms. Q1 2026 adjusted EPS was $0.23, up 53% year over year, suggesting that operating leverage and underlying profitability improved. Continued revenue growth internally from CSGP and patience from investors will allow the company to realize the expensive investments into Homes.com, granting the stock the opportunity to overcome short-term and panicked sentiment.

Business Quality

CSGP maintains a more conservative balance sheet, remaining less leveraged than its peers, sitting at only $994 million in long-term debt, and operating at a net cash position. CSGP operates at $10.2 billion in assets compared to 2.2 billion in total liabilities. Revenues are stable due to the firm's ability to generate significant free cash flow from subscription-based contracts. Costar has a history of finding and integrating acquisitions successfully, such as LoopNet and Apartments.com. Revenue was $3.2 billion to $3.24 billion for full-year 2025, up about 18% year over year at the midpoint, and Q1 2026 revenue was $897 million, up 23% year over year. Adjusted EBITDA was $442 million in full-year 2025, up 83% year over year, and $132 million in Q1 2026, up 100% year over year. Homes.com saw 76% renewal rate on annual contracts, posting a 47% profit margin up 400bp.

Sell triggers

Three consecutive quarters of Homes.com revenue growth deceleration, coupled with two quarters of gross margin compression or adjusted EBITDA seeing three quarters of deceleration will trigger a sell. Fair value is assigned a value of $49, representing roughly a 35% upside from the current market value.