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When everything is going down, the best mindset to have is a long term one. Longstanding stocks such as CoStar Group, Inc. has fared well over time in a volatile stock market, which is why it’s my top pick to invest in. Below I take a look at three key characteristics of what makes a strong defensive stock investment: its size, financial health and track record.
See our latest analysis for CoStar Group
CoStar Group, Inc. provides information, analytics, and online marketplaces to the commercial real estate industry in the United States and the United Kingdom. Established in 1987, and run by CEO Andrew Florance, the company currently employs 3.71k people and with the market cap of US$19b, it falls under the large-cap group. Bear market volatility can have a short-term impact on large, well-established companies, but in the long-run, these businesses are likely to prevail. This is because fundamentally, nothing has changed. A fall in share price is hardly detrimental to its financial health and business operations. So, large-cap stocks are a safe bet to buy more of when the stock market is selling off.
With US$145m debt on its books, CoStar Group has to pay interest periodically. This means it needs to have enough cash on hand to meet these upcoming expenses. CoStar Group generates enough earnings to cover its interest payments, however its interest expenses are already well-covered by its interest income. Furthermore, its operating cash flows amply covers its total debt by more than 2x, which is higher than the bare minimum requirement of 0.2x. Its cash and short-term investment is also sufficient to cover other upcoming liabilities, which means CSGP is financially robust in the face of a volatile market.
CSGP’s annual earnings growth rate has been positive over the last five years, with an average rate of 49%, outpacing the industry growth rate of 12%. It has also returned an ROE of 7.3% recently, above the industry return of 6.5%. This consistent market outperformance illustrates a robust track record of delivering strong returns over a number of years, increasing my conviction in CoStar Group as an investment over the long run.
Next Steps:
CoStar Group makes for a robust long-term investment based on its scale, financial health and track record. Remember, in bear markets, sell-offs can be unjustified. Ask yourself, has anything really changed with CoStar Group? If not, then why not scoop it up at a discount? Lining your portfolio with a few well-established companies can reduce your risk and help you scale your wealth in the long run. One thing you should remember though, is to do your homework. Do your own research, come up with your point of view. Below is a list I’ve put together of other things you should consider before you buy:- 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.
- 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.
- 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.