We think all investors should try to buy and hold high quality multi-year winners. While the best companies are hard to find, but they can generate massive returns over long periods. To wit, the CoStar Group, Inc. (NASDAQ:CSGP) share price has soared 354% over five years. And this is just one example of the epic gains achieved by some long term investors. On top of that, the share price is up 23% in about a quarter. But this move may well have been assisted by the reasonably buoyant market (up 9.4% in 90 days).
While markets are a powerful pricing mechanism, share prices reflect investor sentiment, not just underlying business performance. One way to examine how market sentiment has changed over time is to look at the interaction between a company's share price and its earnings per share (EPS).
Over half a decade, CoStar Group managed to grow its earnings per share at 114% a year. The EPS growth is more impressive than the yearly share price gain of 35% over the same period. So one could conclude that the broader market has become more cautious towards the stock. Of course, with a P/E ratio of 106.14, the market remains optimistic.
The image below shows how EPS has tracked over time (if you click on the image you can see greater detail).
It is of course excellent to see how CoStar Group has grown profits over the years, but the future is more important for shareholders. You can see how its balance sheet has strengthened (or weakened) over time in this free interactive graphic.
A Different Perspective
It's good to see that CoStar Group has rewarded shareholders with a total shareholder return of 47% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 35% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For instance, we've identified 2 warning signs for CoStar Group that you should be aware of.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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