Some stocks are worth looking at even before their earnings are out in the market, a view contrary to the popular belief that whatever results will come of earnings are potentially already priced into the stock before the event. If this were the case, however, then stocks wouldn’t see such sharp swings when earnings announcements do come out, and investors should know there’s a science behind the move.
While not an exact science, it is founded on fundamental and technical evidence that logically explains the stock’s move on earnings. Today, investors can review such evidence in shares of CoStar Group Inc. (NASDAQ: CSGP) as the company is set to announce its quarterly earnings results later this week. Some of these factors could make investors lean into a potential buy decision prior to the event.
This process can be done by comparing CoStar Group stock to peers in the technology sector, to names like C3.ai Inc. (NYSE: AI) and even Check Point Software Technologies Inc. (NASDAQ: CHKP), specifically looking for signs of an outlier metric in part of CoStar Group stock when it comes to forward P/E valuations and earnings per share (EPS) growth forecasts set by Wall Steet analysts. But, before all that, a reason to look in the first place.
CoStar Group Stock Riding on Expanding Industry Tailwinds
There’s a very important economic report that comes out monthly and can point investors in the right direction in terms of which industries to gain a bullish bias on. This time, investors would be led to pick the computer and electronics industry through the manufacturing PMI index.
Why? It has shown three consecutive months of expansion readings, which means the probability of stocks within the space reporting an EPS beat is higher than normal, considering a quarter is made up of three months. Based on this trend, investors can start to pick the specific stocks showing this above-average growth trend.
Wall Street analysts think that CoStar Group stock could deliver up to $0.29 EPS in the next 12 months, which would be a massive increase from today’s $0.15 EPS recently reported. If the company can deliver, this would imply a 93.3% growth rate in earnings, which could easily lead to a similar rally in the stock price.
It seems other analysts share this belief, as those at J.P. Morgan Chase recently decided to reiterate their “Overweight” rating for CoStar Group stock. Their view included a valuation of up to $108 a share in the company, implying the stock has room for a rally of as much as 36.3% from where it trades today.
Considering that the stock trades at only 79% of its 52-week high today, investors could safely assume that there is enough room for the company to make the sort of run these analysts are projecting. But that’s one side of the equation. Now, here’s what the markets had to say.
Bullish Sentiment Builds for CoStar Group Stock Ahead of Earnings
The rest of the information technology industry trades at an average forward P/E of 27.6x, which the market is willing to pay today for tomorrow’s earnings. Now, given that CoStar Group stock trades at 62.4x forward P/E today, some investors might call a 125% premium “expensive.”
And they would be right, but stocks are expensive for a reason, and a market willing to overpay for this company can indeed be taken as a sign of high expectations ahead of earnings being announced this week. Compared to significant peers like C3.ai and Checkpoint Software, CoStar Group stock commands a similar premium.
C3.ai shareholders can’t expect to see a net profit for the year, an easy win for CoStar Group. Then, Checkpoint Software stock trades at 20.6x forward P/E, an inferior valuation due to its 10.5% EPS growth forecasts falling well below CoStar Group’s.
Superior EPS growth can be one reason to overpay for a stock. Still, the market always has a timeline in mind for a trade. The chances of earnings being the spark to light up an opportunity to sell at a profit are big enough for investors to consider.
Now, there are others on Wall Street willing to express their bullish view on this stock ahead of the big event. Those at Allspring Global Investments Holding decided to boost their position in the company by 25.6% as of October 2024, bringing their net investment up to $34.1 million today.
Signs of institutional buying can be added to the stack of positive evidence for investors to make an educated decision to consider buying CoStar Group stock ahead of – and holding it through – their upcoming earnings announcement.
