We recently published a list of Top 10 Stocks to Buy According to Akre Capital Management. In this article, we are going to take a look at where CoStar Group, Inc. (NASDAQ:CSGP) stands against other top stocks to buy according to Akre Capital Management.
Akre Capital Management follows a disciplined investment philosophy centered around identifying exceptional businesses managed by honest and capable leaders who reinvest free cash flow wisely. This approach, referred to as the “three-legged stool,” emphasizes three key factors: extraordinary businesses, strong management teams, and effective reinvestment strategies. The firm’s primary objective is to compound investor capital at above-average rates while maintaining a lower level of risk compared to industry norms. Led by founder Chuck Akre until 2020, the firm has consistently adhered to this philosophy, delivering strong results over the years.
The foundation of Akre Capital’s investment strategy is built on the principle that long-term returns closely correlate with the return on an owner’s capital, assuming stable valuations and no distributions. Historically, the average return on U.S. equities has been around 9% to 10%, aligning with book value growth per share. Akre Capital seeks to outperform this benchmark by selecting businesses with superior return profiles, believing that these “compounding machines” are the best way to achieve sustainable wealth accumulation. The firm places great emphasis on patience and discipline, resisting short-term market fluctuations in favor of long-term growth.
Unlike many asset managers, Akre Capital does not rely on setting specific sell targets when acquiring shares. Instead, it evaluates potential investments with the intent of holding them indefinitely, selling only when one of the core aspects of the “three-legged stool” is compromised. This long-term approach distinguishes the firm from Wall Street’s frequent short-term focus on quarterly earnings surprises. Rather than reacting to minor earnings fluctuations, Akre Capital remains committed to businesses with solid economic fundamentals, viewing temporary price declines as opportunities to acquire high-quality companies at attractive valuations.
Another key differentiator of Akre Capital is its ability to capitalize on market inefficiencies. The firm takes advantage of Wall Street’s obsession with short-term earnings reports, often using quarterly “misses” as opportunities to invest in undervalued companies with strong long-term potential. With a focus on growth over five- and ten-year periods, Akre Capital prioritizes economic value per share rather than short-term stock price movements. This steadfast commitment to its investment philosophy has allowed the firm to consistently achieve its goal of compounding capital while mitigating risk.
Charles T. “Chuck” Akre, Jr. is a seasoned asset manager with over five decades of experience overseeing private funds, mutual funds, and separately managed accounts. He founded Akre Capital Management in 1989 after spending 21 years at Johnston, Lemon & Co., a NYSE member firm, where he gained expertise in research, asset management, and branch operations. During his time there, he developed a deep understanding of securities and investment strategies, which laid the foundation for his own firm’s approach.
From 1993 to 2000, Akre Capital Management operated under the umbrella of Friedman, Billings, Ramsey & Co. in Washington, D.C., providing Chuck with additional resources to refine and expand his investment philosophy. However, in 2000, he chose to take the firm private again, emphasizing independence and a long-term investment approach. He relocated Akre Capital to Middleburg, Virginia, a rural setting that reflected his preference for a focused and patient investment process, free from the distractions of Wall Street’s short-term mentality.
At Akre Capital, Chuck Akre’s leadership has shaped the firm’s long-term success, ensuring consistent capital growth for investors. Over the years, he has earned a reputation for his disciplined and insightful approach to asset management. Today, Akre continues to contribute his expertise as Chairman of Akre Capital Management. He works alongside John Neff, the portfolio manager of the Akre Focus Fund, ensuring that the firm’s investment principles remain intact. With decades of experience and a commitment to compounding capital at superior rates, Chuck Akre’s influence in the investment world remains significant.
As of its most recent filing for the fourth quarter of 2024, Akre Capital Management manages approximately $11.56 billion in 13F securities. The firm maintains a highly concentrated portfolio, with its top ten holdings accounting for 94.82% of total assets. This focused investment approach reflects Akre Capital’s commitment to selecting a small group of high-quality businesses with strong growth potential and disciplined management.
The stocks discussed below were picked from Akre Capital Management’s Q4 2024 13F filings. They are compiled in the ascending order of the hedge fund’s stake in them as of December 31, 2024. To assist readers with more context, we have included the hedge fund sentiment regarding each stock using data from 1009 hedge funds tracked by Insider Monkey in the fourth quarter of 2024.
Why are we interested in the stocks that hedge funds pile into? The reason is simple: our research has shown that we can outperform the market by imitating the top stock picks of the best hedge funds. Our quarterly newsletter’s strategy selects 14 small-cap and large-cap stocks every quarter and has returned 373.4% since May 2014, beating its benchmark by 218 percentage points (see more details here).
Is CoStar Group, Inc. (CSGP) the Top Stock to Buy According to Akre Capital Management?
An elegant residential building set against the modern skyline.
Number of Hedge Fund Holders as of Q4: 56
Akre Capital Management’s Equity Stake: $666.78 Million
CoStar Group, Inc. (NASDAQ:CSGP) is a leading provider of information, analytics, and marketing services for the commercial real estate industry in North America and Europe. With a market capitalization of $31.55 billion and strong gross profit margins of nearly 80%, the company maintains a solid financial position, holding more cash than debt. CoStar is expanding its workforce significantly at its Richmond operations center, where it plans to complete a new one-million-square-foot global headquarters by May 2026.
The company’s growth is driven by the success of Homes.com, now one of the most visited real estate platforms in the U.S., with an average of 110 million unique monthly visitors in Q4 2024. To support this expansion, CoStar Group, Inc. (NASDAQ:CSGP) plans to hire 500 new sales professionals and 100 market analysts to enhance content for new construction home listings. Additionally, following its acquisition of Visual Lease, the company will bring on 100 analysts to develop rent indices for clients. As part of its broader strategy, CoStar is also investing in artificial intelligence, video production, and real estate-focused news and writing. While it anticipates some workforce adjustments in 2025 due to AI-driven efficiencies, the company remains focused on optimizing performance and revenue generation.
Despite its expansion, CoStar Group, Inc. (NASDAQ:CSGP)’s recent earnings report fell short of expectations, with adjusted Q4 earnings per share at $0.15, below the analyst estimate of $0.22. However, revenue for the quarter exceeded forecasts, reaching $709 million, an 11% year-over-year increase. For the full year 2024, revenue totaled $2.74 billion, though net income declined to $139 million from $375 million. Looking ahead, CoStar projects 2025 revenue between $2.98 billion and $3.01 billion, slightly below analyst expectations. In a strategic move, the company has also made an unsolicited bid to acquire Domain Holdings Australia for $4.20 per share, subject to regulatory approvals. Analysts have responded cautiously, with Needham, Citi, and Citizens JMP all lowering their price targets for CoStar Group, Inc. (NASDAQ:CSGP) while maintaining favorable ratings, reflecting both confidence in the company’s key segments and concerns over its 2025 outlook.
Polen Focus Growth Strategy stated the following regarding CoStar Group, Inc. (NASDAQ:CSGP) in its Q4 2024 investor letter
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“We initiated a position in CoStar Group, Inc. (NASDAQ:CSGP) after a significant pullback post-3Q24 earnings. CoStar Group is a leading provider of commercial real estate information, analytics, and online marketplaces, empowering clients with comprehensive data and technology solutions to make informed business decisions. The vast majority of the company’s revenue and profits come from its monopoly-like CoStar Suite (the go-to information source for the U.S. commercial real estate market) and Apartments.com, an advantaged player in the duopolistic U.S. apartment rental market. There are very high barriers to entry and network effects in these businesses, and both are double-digit growers with over 40% profit margins and very high levels of recurring revenue. We believe the price at which we acquired CoStar reflects the value of these two core businesses, leaving significant upside potential from numerous other growth drivers in earlier stages of development. In particular, Homes.com—CoStar’s residential real estate marketplace—is a source of heavy investment that is materially depressing the company’s overall profit margins in the near term. However, leading indicators of success are already emerging, and we expect Homes.com to contribute meaningfully to future growth and at high margins. If, for some reason, they don’t succeed, we would expect the investment to be curtailed, and the core profitability to shine through again. CoStar has a cash-rich balance sheet, high recurring revenue, and the ability to compound revenue and earnings for many years to come.”
Overall, CSGP ranks 9th on our list of top stocks to buy according to Akre Capital Management. While we acknowledge the potential for CSGP as an investment, our conviction lies in the belief that some AI stocks hold greater promise for delivering higher returns and doing so within a shorter time frame. If you are looking for an AI stock that is more promising than CSGP but that trades at less than 5 times its earnings, check out our report about the cheapest AI stock.
