Should You Use CoStar Group's (NASDAQ:CSGP) Statutory Earnings To Analyse It?

By
Simply Wall St
Published
November 13, 2020
NasdaqGS:CSGP

Broadly speaking, profitable businesses are less risky than unprofitable ones. That said, the current statutory profit is not always a good guide to a company's underlying profitability. In this article, we'll look at how useful this year's statutory profit is, when analysing CoStar Group (NASDAQ:CSGP).

We like the fact that CoStar Group made a profit of US$279.3m on its revenue of US$1.59b, in the last year. In the chart below, you can see that its profit and revenue have both grown over the last three years, although its profit has slipped in the last twelve months.

Check out our latest analysis for CoStar Group

earnings-and-revenue-history
NasdaqGS:CSGP Earnings and Revenue History November 13th 2020

Not all profits are equal, and we can learn more about the nature of a company's past profitability by diving deeper into the financial statements. In this article we'll look at how CoStar Group is impacting shareholders by issuing new shares. That might leave you wondering what analysts are forecasting in terms of future profitability. Luckily, you can click here to see an interactive graph depicting future profitability, based on their estimates.

In order to understand the potential for per share returns, it is essential to consider how much a company is diluting shareholders. As it happens, CoStar Group issued 7.6% more new shares over the last year. As a result, its net income is now split between a greater number of shares. To talk about net income, without noticing earnings per share, is to be distracted by the big numbers while ignoring the smaller numbers that talk to per share value. Check out CoStar Group's historical EPS growth by clicking on this link.

How Is Dilution Impacting CoStar Group's Earnings Per Share? (EPS)

CoStar Group has improved its profit over the last three years, with an annualized gain of 158% in that time. But EPS was only up 123% per year, in the exact same period. Net profit actually dropped by 10% in the last year. Unfortunately for shareholders, though, the earnings per share result was even worse, declining 13%. So you can see that the dilution has had a bit of an impact on shareholders. Therefore, the dilution is having a noteworthy influence on shareholder returns. And so, you can see quite clearly that dilution is influencing shareholder earnings.

In the long term, if CoStar Group's earnings per share can increase, then the share price should too. But on the other hand, we'd be far less excited to learn profit (but not EPS) was improving. For that reason, you could say that EPS is more important that net income in the long run, assuming the goal is to assess whether a company's share price might grow.

Our Take On CoStar Group's Profit Performance

Over the last year CoStar Group issued new shares and so, there's a noteworthy divergence between EPS and net income growth. Because of this, we think that it may be that CoStar Group's statutory profits are better than its underlying earnings power. But on the bright side, its earnings per share have grown at an extremely impressive rate over the last three years. At the end of the day, it's essential to consider more than just the factors above, if you want to understand the company properly. If you want to do dive deeper into CoStar Group, you'd also look into what risks it is currently facing. For example, we've discovered 2 warning signs that you should run your eye over to get a better picture of CoStar Group.

This note has only looked at a single factor that sheds light on the nature of CoStar Group's profit. But there is always more to discover if you are capable of focussing your mind on minutiae. For example, many people consider a high return on equity as an indication of favorable business economics, while others like to 'follow the money' and search out stocks that insiders are buying. So you may wish to see this free collection of companies boasting high return on equity, or this list of stocks that insiders are buying.

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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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