CSGP: The Stock Collapsed — Now Profitability Is Catching UpCoStar Group, Inc.BATS:CSGPstouflacrucoCSGP has gone from roughly $100 to the low-$30s, one of the deepest resets in its public history. For much of that decline, the market's complaint was straightforward: CoStar had a fantastic commercial real-estate data franchise, but management was pouring enormous amounts of money into Homes.com and residential expansion. Now something important has changed. The stock is still near the lows, but profitability has started inflecting sharply upward — and the Master Buy Scanner V2 has flipped to BUY. Master Buy Scanner V2 — 3 Week Score: 3/3 Action: BUY / BUILD Decision: INVEST Entry quality: EXCELLENT — 100% Position size: FULL — 100% Top recent: YES WT cross: YES Band 1: GREEN Combined: GREEN 7/10 Bands synchronized: YES Cycle: ACTIVE WT1 / WT2: -49.89 / -51.89 The Advanced layer is particularly strong: 14/14 — 100% Lifecycle: CONFIRM Conviction: B+ — 80% False bottom: OK Technically, this is no longer just an oversold setup. The WT cross has occurred, Band 1 is green, the bands are synchronized and the broader confirmation layer is maxed out. The reversal structure is active. And this time the fundamentals are beginning to cooperate CoStar's Q2 revenue reached $925M, up 18% YoY. But the more interesting numbers are below the top line: Net income: $55M vs $6M Adjusted EPS: $0.32, +88% EBITDA: $157M, +441% Adjusted EBITDA: $184M, +116% Management described Q2 as a profitability inflection point, and that's difficult to argue with. Operating expenses grew only about 2% while revenue grew 18%. That is exactly what investors needed to see after years of questioning CoStar's capital allocation. Homes.com may finally be moving from liability to asset This has been the central controversy around CSGP. CoStar spent aggressively trying to build Homes.com into a genuine Zillow competitor. Activist investors argued that management was effectively sacrificing the economics of the excellent commercial business to finance an uncertain residential land grab. Third Point went as far as pushing CoStar to sell or shut the residential operation. It eventually exited its entire position in April after concluding its thesis was no longer viable; by then, shares had fallen from roughly $66 in January to around $36. That history matters. Because Q2 produced something investors had been waiting for: CoStar's residential segment turned Adjusted EBITDA positive for the first time. Residential Adjusted EBITDA improved from -$29M in Q1 to +$12M in Q2, a $41M sequential swing. One quarter doesn't prove the residential strategy has worked. But it materially changes the debate. The underlying commercial franchise remains excellent CoStar's core value still comes from its proprietary real-estate databases and workflow products. CoStar Suite, Apartments.com, LoopNet and related services sit inside the daily workflows of brokers, property managers, lenders, owners and investors. This creates the kind of business model I generally like: proprietary data + recurring subscriptions + high switching costs + pricing power. CoStar has now delivered 61 consecutive quarters of double-digit revenue growth. Very few companies maintain that kind of consistency through multiple real-estate cycles. The problem was never that CoStar had a bad core business. The problem was how much of its profitability management was willing to reinvest elsewhere. Management is finally emphasizing operating leverage This may be the strongest part of the thesis. CoStar expects 2026 Adjusted EBITDA of: $780M–$820M versus $442M in 2025. At the midpoint, that's roughly 81% growth in Adjusted EBITDA. And management is targeting approximately $1.25B of Adjusted EBITDA by 2028. Meanwhile, Homes.com net investment is being reduced substantially. Management previously said it planned to cut that investment by more than $300M in 2026, followed by reductions of at least $100M annually until 2030. That creates an interesting potential setup: Revenue continues compounding while a major cost sink gradually disappears. If that happens, earnings can grow substantially faster than revenue. AI is more than a buzzword here CoStar also has one of the better datasets for applying AI to real estate. Its platforms combine: Property records Lease information Listings Market analytics Images Neighborhood data Matterport 3D models Apartments.com AI launched in June, and CoStar says early users spent 2.8x longer on the platform, viewed twice as many listings and generated a 256% increase in traffic-to-lead conversion versus non-AI users. CoStar is also using AI internally for lease abstraction, coding, public-record research and content creation. For me, that's more compelling than simply adding a chatbot. The real opportunity is using AI to increase both: product value + operating efficiency. But there are still two major problems The first is valuation. My scanner gives CSGP: Value score: 3.5/7 — 50% with: Cash yield: 3.35% — ORANGE Business price: 27.76 — RED Cash-flow price: 32.63 — RED Earnings price: 180.74 — RED That last number reflects depressed trailing GAAP profitability and therefore exaggerates the valuation if earnings recover as expected. Using management's $1.32–1.39 adjusted EPS guidance, the stock around $33 is closer to roughly 24x forward adjusted earnings. That is much more reasonable — but still not deep value. The BUY here is therefore based on an earnings inflection, not a statistically cheap stock. The second issue: revenue momentum has softened CoStar reduced its FY2026 revenue outlook to: $3.715B–$3.755B from the previous $3.78B–$3.82B range. That still implies approximately 15% growth, but the downgrade matters. And Q2 annualized net new subscription bookings were $69M versus $93M a year earlier, even though they improved sequentially from Q1. So the picture isn't perfect: profitability is accelerating while parts of the top-line engine are decelerating. That's something I'd monitor closely. The scanner captures this tension perfectly Business quality is only: 2/3 — 67% because current profitability metrics still carry the scars of heavy investment. Return on capital: 0.08% — ORANGE Margin trend: -1.22% — ORANGE But growth remains: 3/4 — 75% with three-year sales growth around 14%. The scanner's enormous future-profit-growth figure is less meaningful because earnings are recovering from such a depressed base. What matters is the direction: CoStar is transitioning from investment mode toward monetization mode. If margins continue normalizing, many of today's weak quality ratios should improve rapidly. What I'm watching technically The stock appears to be forming a base around $28–33 after an extraordinary decline. My main zones would be: $28–30: key support $32–35: current accumulation zone $40: first meaningful resistance $45–50: major recovery area $55–60: structural resistance The encouraging part is that the scanner didn't trigger during the vertical collapse. It waited until: oversold → WT turn → bullish cross → Band 1 GREEN → synchronized bands → BUY That's exactly the type of sequence I want from a reversal system. My classification: EARNINGS INFLECTION BUY CSGP now combines: 3/3 BUY 100% entry quality 14/14 Advanced score Confirmed WT cross Synchronized bands ~70% decline from the highs 18% Q2 revenue growth +116% Adjusted EBITDA growth +88% adjusted EPS growth Residential reaching positive Adjusted EBITDA 15% expected FY revenue growth Significant operating leverage ahead Against: Still not particularly cheap Revenue guidance was reduced Subscription bookings are below last year Homes.com execution risk remains Historical capital allocation deserves scrutiny Current GAAP profitability remains weak This is therefore not a conventional value investment. It's more interesting than that. The market has already punished CoStar for the investment cycle, while the company is now beginning to emerge from that investment cycle. If Homes.com continues improving and CoStar actually delivers the margin expansion management is targeting, the earnings profile two years from now could look dramatically different from today's trailing numbers. And for the first time during this decline, the technical setup agrees. Current verdict: BUY / BUILD — attractive reversal, but execution now has to validate the signal. What would you do? A) Build around $30–35 B) Wait for a break above $35 C) Wait another quarter to confirm the margin inflection Master Buy Scanner V2 Not financial advice.