Investors looking for stocks with high market liquidity and zero debt on the balance sheet should consider CoStar Group, Inc. (NASDAQ:CSGP). With a market valuation of US$17b, CSGP is a safe haven in times of market uncertainty due to its strong balance sheet. 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.
Is CSGP’s debt level acceptable?
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.
Can CSGP pay its short-term liabilities?
Since CoStar Group doesn’t have any debt on its balance sheet, it doesn’t have any solvency issues, which is a term 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. With current liabilities at US$154m, it appears that the company has been able to meet these commitments with a current assets level of US$1.2b, leading to a 7.87x current account ratio. The current ratio is calculated by dividing current assets by current liabilities. However, many consider a ratio above 3x to be high, although this is not necessarily a bad thing.
CSGP has zero debt as well as ample cash to cover its near-term commitments. Its strong balance sheet reduces risk for the company and its investors. This is only a rough assessment of financial health, and I’m sure CSGP has company-specific issues impacting its capital structure decisions. I suggest you continue to research CoStar Group to get a better picture of the stock by looking at:
- 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.
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