CoStar (CSGP) stock has outperformed YTD, but I think this rally still has legs. Yes, the multiple is high, but there’s ample growth potential and visibility to boot - the company derives the vast majority of its revenue from subscription-based services and has sustained exceedingly high renewal rates over the years. Plus, CSGP is tackling a massive TAM (digitizing the real estate industry). Growth, margin expansion, and high cash conversions are a good combination in any investment, and I believe CSGP has them in spades. Relative to the FY23 targets, which seem very much within reach, the risk/reward strikes me as favorable here.

I was positively surprised to see CSGP’s net new bookings improving to ~$53m in 3Q (up from ~$35m in 2Q), with broad gains across segments and a steady monthly cadence of new sales signaling the return of its pre-COVID momentum. I’d single out the multifamily performance on Apartments.com as a key area to watch for – per management, net new sales here were up a record 59% YoY, with an extensive secular growth runway ahead as more transactions move online over the long-term.

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