Investment Thesis
CoSTAR faces a severe profitability crisis with net income declining 95% YoY despite 18.7% revenue growth, driven by unexplained operating expense surge that crushed operating margin to 0.3%. While the strong balance sheet, excellent gross margins (78.1%), and solid free cash flow provide a financial cushion, the interest coverage ratio of 0.4x signals debt servicing stress and threatens long-term sustainability without urgent operational improvements.
Strengths
- Strong topline growth of 18.7% YoY demonstrates demand for core services
- Excellent gross margins of 78.1% indicate healthy unit economics and pricing power
- Fortress balance sheet with low leverage (0.13x D/E) and strong liquidity (2.2x current ratio) provide financial flexibility
- Positive free cash flow of $107M ($1.2B cash position) offers runway to address operational issues
Risks
- Operating margin collapse to 0.3% reflects massive unexplained operating expense increases that offset revenue growth
- Interest coverage ratio of 0.4x is critically low; operating income of $3M inadequately covers debt service obligations
- Net income declined 95% YoY and returns on equity/assets are near zero, indicating capital is being destroyed
- The $698M gap between gross profit and operating income suggests structural cost problems or undisclosed charges
Key Metrics to Watch
- Operating expense ratio and detailed SG&A breakdown next quarter
- Operating margin trend and path to sustainable profitability
- Interest coverage ratio recovery above 1.0x
- Operating cash flow sustainability and any deterioration in conversion ratios
Financial Metrics
Revenue
897.0M
Net Income
3.0M
EPS (Diluted)
$0.01
Free Cash Flow
107.0M
Total Assets
10.2B
Cash
1.2B
Profitability Ratios
Gross Margin
78.1%
Operating Margin
0.3%
Net Margin
0.3%
ROE
0.0%
ROA
0.0%
FCF Margin
11.9%
Balance Sheet & Liquidity
Current Ratio
2.20x
Quick Ratio
2.18x
Debt/Equity
0.13x
Debt/Assets
21.8%
Interest Coverage
0.43x
Long-term Debt
1.0B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-05-06T12:55:36.667151 |
Data as of: 2026-03-31 |
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