Costar (csgp): Is The Homes.com Gamble Destroying A Great Business, Or Hiding One?

CoStar Group, Inc. (NASDAQ:CSGP) owns the data that the commercial-real-estate industry runs on, a near-monopoly built over decades. Yet the stock sits near a 52-week low, and its price-to-earnings ratio looks absurd at about 160. That number is misleading. CoStar has poured billions into Homes.com, its bid to challenge Zillow, and that spending has buried the profits of an otherwise excellent business. So here is what you are really buying near $28: a fortress data franchise, plus a costly bet on residential real estate.

CoStar is far from the only stock under $50 drawing attention, so see which others made the 10 Best US Stocks To Buy Under $50.

The Sum-of-the-Parts

To really understand CoStar, split it in two. The core is the CoStar Suite, the subscription database commercial-property professionals treat as essential, alongside Apartments.com and LoopNet. This core is a fortress: revenue keeps growing, subscribers rose 19% to 327,000, renewals are high, and it throws off real cash at high margins. On its own, that business would command a rich valuation. The second piece is Homes.com, the residential marketplace CoStar is funding to take on Zillow. Its losses are what crush reported earnings. Strip out the Homes.com investment and the underlying company is solidly profitable, with adjusted operating profit more than doubling last quarter to a 20% margin.

The Bull Case

The company’s commercial-data moat is strong. CoStar has decades of proprietary research and switching costs that keep retention high. That alone may justify much of today’s price. And Homes.com is finally showing life, posting its first profitable quarter and growing residential revenue by roughly a third after a new leader took over. If CoStar can carve out even a slice of the huge residential market, the payoff is large. And near a 52-week low, buyers are paying little for that chance.

The Bear Case

The bears say Homes.com is a cash furnace that may never beat Zillow. Zillow owns the habit of home buyers and the loyalty of agents, a network that billions in CoStar spending has yet to dislodge. The residential unit has seen leadership turnover, a sign the plan is still being worked out, and the losses have derated the stock hard. One profitable quarter does not prove the model works. If Homes.com keeps consuming cash without winning the market, that option simply keeps costing shareholders.

The Bottom Line

So, is Homes.com an underpriced option, or a money pit? That is the real tell. To the bulls, the residential land-grab is the decisive catalyst, since the data core already compounds nicely and Homes.com could open a vast new market if it works. For the bears, the appeal is the sum-of-the-parts: paying mostly for a fortress data franchise and getting the residential bet cheap. An income investor finds little, since CoStar pays no dividend. The core looks genuinely elite, yet the stock will likely live or die on whether Homes.com turns the corner.

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Market Sentiment

According to Insider Monkey’s database, 58 hedge funds held CoStar Group, Inc. (NASDAQ:CSGP) at the end of the second quarter of 2026, down from 62 the quarter before, signalling a modest fall in institutional interest. The value of those combined holdings also fell over the period, from about $2.0 billion to roughly $1.6 billion.

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This article is originally published at Insider Monkey.