Hook & thesis
CoStar Group (CSGP) is being pushed. Third Point’s impatience — public or private — matters in a market that rewards quick capital return and decisive margin improvement. Management has responded: on 01/07/2026 CoStar announced a $1.5 billion buyback and set 2026 targets that call for $3.78-$3.82 billion in revenue (roughly +18% year-over-year) and record adjusted EBITDA of $740-$800 million. Those moves create a clear, near-term upside path for the stock even though the multiple is stretched.
We are upgrading CoStar to a tactical long because the combination of shareholder-friendly capital allocation, explicit margin targets and accelerating AI deployment narrows the odds of a near-term upside surprise. This is a trade, not a full-thesis buy-and-hold: the valuation remains premium and execution risk is real, so size the position accordingly and use a tight stop.
Business primer - why the market should care
CoStar operates online marketplaces, information and analytics across commercial and residential real estate. Its core businesses - CoStar, Apartments.com and LoopNet - provide subscription data and lead-generation marketplaces where scale and data moats matter. The company is pushing deeper into AI and analytics (including prior acquisitions like Matterport) while shrinking cash-intensive bets: management said it will reduce Homes.com annual investments from about $850 million to under $550 million through 2030 and is targeting Homes profitability by 2030. For investors, that matters because it both reduces cash burn and accelerates the path to positive contribution from consumer-facing businesses.
Key fundamentals and the numbers that matter
- Price and liquidity: CSGP closed recent trading at $65.19 (previous close $66.22) with two-week average volume ~7.20 million shares and 30-day average ~6.51 million.
- Market size and balance sheet: market capitalization ~ $27.63 billion and enterprise value ~ $26.69 billion. Cash on the balance sheet is roughly $2.51 billion and debt-to-equity sits at ~0.12.
- Profitability and valuation: trailing EPS is effectively negligible (reported EPS $0.05), producing an eye-popping P/E on trailing numbers (over 1,300x in the ratios snapshot). Price-to-sales is ~9.04 and price-to-book ~3.21. Free cash flow was slightly negative in the trailing snapshot (-$38.8 million), reflecting continued investment into growth initiatives.
- Guidance and capital return: management is forecasting 2026 revenue of $3.78-$3.82 billion (about +18%) and adjusted EBITDA of $740-$800 million, and announced a $1.5 billion share repurchase program on 01/07/2026.
Why this is tradeable now
Three concrete developments make CoStar a suitable swing trade:
- Active share repurchase: a $1.5 billion buyback materially reduces float and signals management confidence — and it responds to activist pressure with tangible capital allocation.
- Near-term profitability target: record adjusted EBITDA guidance for 2026 gives a defined operational milestone. If CoStar hits the midpoint (~$770 million), the multiple that looks absurd on trailing metrics will compress meaningfully on forward EBITDA.
- Short interest and flows: while short interest has been high historically, days-to-cover recently fell (settlement 01/15/2026 shows ~14.42 million shares short and days-to-cover ~1.91 on elevated volume), setting up potential squeeze dynamics when buybacks and positive prints align.
Valuation framing
On trailing metrics the stock appears richly priced: price-to-sales ~9.0 and EV/EBITDA in the dataset is shown at ~103.9, which reflects past EBITDA levels and heavy investment. That said, management’s 2026 EBITDA target of $740-$800 million would materially reduce EV/EBITDA if achieved. Using the enterprise value of ~$26.69 billion and the midpoint EBITDA target of $770 million implies an EV/EBITDA near ~34.7x — still premium, but far more defensible for a market leader with recurring subscription revenues and high gross margins.
In short, the market is pricing CoStar as a high-growth, high-margin franchise; the stock needs execution on margins and buybacks to justify that price. A successful combination of buybacks, accelerated margin expansion and AI-driven revenue upside could re-rate multiples higher. Conversely, missed EBITDA or slower-than-expected homes profitability would keep multiples under pressure.
Catalysts (what could drive the trade)
- Earnings prints and cadence: quarterly releases that show acceleration toward the $740-$800 million EBITDA target will be immediate catalysts.
- Buyback execution: visible repurchases or an acceleration of repurchase cadence would support near-term technicals and shares outstanding reduction.
- Third Party/Activist moves: public activism or a visible settlement with Third Point that accelerates capital return or governance changes would be a positive event.
- Macro tailwinds: any signs of easing interest rates or a stronger housing market that lift listings and ad spend would help top-line growth.
Trade plan - actionable entry, stop and target
We are taking a mid-term swing trade. This is a directional, event-driven setup that leans on execution and buyback follow-through rather than a value rebalance.
- Trade direction: Long
- Entry price: $65.20
- Target price: $82.00
- Stop loss: $59.00
- Horizon: mid term (45 trading days) — allow time for a quarter update or visible buyback activity to show up in the tape and for momentum to build post-announcement.
Rationale: at $65.20 the risk/reward is attractive — upside to $82 equates to roughly +25.8% from entry, while the stop at $59 limits downside to about -9.6%, a roughly 2.7x reward/risk. The 45 trading day horizon gives the company time to either confirm guidance momentum or for buyback activity and activist pressure to move the stock price.
Balanced risks and counterarguments
CoStar is not a low-risk play. Consider these key risks before entering:
- Execution risk on EBITDA: Management’s $740-$800 million 2026 EBITDA target is ambitious. If growth beats but margin expansion lags due to higher AI spend or slower Homes.com cost reductions, multiples may stay compressed.
- High valuation on trailing metrics: The stock trades at premium multiples (P/S ~9.0; reported trailing P/E in the thousands), leaving little room for disappointment and amplifying downside on missed expectations.
- Macroeconomic pressure: Commercial real estate and ad spend are cyclical. A weaker economy or higher-for-longer rates would hit bookings and advertising budgets, pressuring revenue growth.
- Capital allocation uncertainty: While management announced a $1.5 billion buyback, the pace of execution matters. A slow buyback cadence or reinvestment into lower-return initiatives could disappoint investors and fails to satisfy activist demands.
- Short-squeeze volatility and liquidity swings: Elevated short interest and episodic short covering can create whipsaw moves. That amplifies both upside and downside intraday volatility.
Counterargument to our thesis: A reasonable counter is that CoStar’s premium valuation already prices in accelerating margins and buyback-driven EPS accretion, and any execution miss would lead to a sharp multiple reversion. If you believe EBITDA targets are optimistic — particularly given the legacy Homes.com cash consumption and the potential need for further investment into AI without immediate monetization — then sitting on the sidelines or shorting the stock on a failed print could be a better risk/reward play.
What would change my mind
I would close this trade and downgrade the thesis if any of the following occur:
- Management withdraws or materially reduces the $1.5 billion repurchase program or delays buybacks for an extended period.
- Quarterly results show persistent negative free cash flow with no credible path to the company’s EBITDA target or Homes profitability timelines are pushed materially beyond 2030.
- Macro shock that meaningfully reduces commercial/residential listing volumes and ad spend, undermining the top-line growth thesis.
Conclusion
CoStar is a company with a high-quality data franchise and meaningful optionality from AI and marketplace scale. Third Point’s impatience — whether public or private — has accelerated shareholder-friendly moves that create a unique, tradeable setup. We upgrade to a tactical long with a clear entry at $65.20, stop at $59.00 and target of $82.00 for a mid-term 45-trading-day swing. The trade balances a premium valuation against concrete catalysts (buybacks, EBITDA targets, AI monetization) and offers a favorable reward-to-risk if management can demonstrate credible progress toward its 2026 targets.
Key monitoring checklist while in the trade:
- Follow buyback tranche announcements and reported shares retired.
- Watch quarterly revenue and adjusted EBITDA progression vs. the $740-$800M target.
- Monitor short interest and intraday short-volume flows for squeeze risk.
- Track Homes.com investment cadence and any updated guidance around consumer profitability.
Trade plan recap: Long CSGP. Entry $65.20. Target $82.00. Stop $59.00. Mid-term (45 trading days). Size position to limit portfolio exposure to a single execution risk event.