D/B/A Compass Diversified Holdings (NYSE: CODI) stands out in the industrial conglomerate sector, offering a unique blend of investment opportunities and value propositions. With a market capitalization of $1.3 billion, this diversified private equity firm specializes in acquiring and managing middle-market businesses across a wide array of industries, including industrial, branded consumer companies, textiles, and more. Founded in 2006 and headquartered in Westport, Connecticut, Compass Diversified has carved a niche in controlling ownership interests, typically holding onto its investments for five to seven years.
Currently trading at $17.33, CODI offers an intriguing prospect for investors, especially given its potential 74.76% upside based on analyst ratings. The average target price set by analysts is $30.29, significantly higher than its current trading price, which suggests substantial room for appreciation. This is further supported by the seven buy ratings that outweigh the two hold ratings, with no analysts recommending a sell.
Technically, CODI’s stock performance has been under pressure, as indicated by its 50-day and 200-day moving averages, which stand at $18.78 and $21.18, respectively. The Relative Strength Index (RSI) is at 54.52, suggesting a neutral position, while the MACD and signal line, at -0.50 and -0.69 respectively, indicate bearish momentum. However, these technical indicators could shift positively with improved market conditions or company performance.
Despite the negative EPS of -1.25 and a challenging free cash flow situation of -$93.48 million, Compass Diversified has managed to provide a robust dividend yield of 5.77%. The high payout ratio of 404.62% raises questions about sustainability, but it also highlights CODI’s commitment to returning capital to shareholders, which can be appealing for income-focused investors.
Compass Diversified’s revenue growth of 31.10% is a testament to its strategic acquisitions and efficient management of its portfolio companies. The forward P/E ratio of 6.41 suggests that the market may be undervaluing the firm’s future earnings potential, especially when considering its strategic focus on high-growth sectors and strong operational track record.
The firm’s approach to investment, focusing on controlling stakes and seeking substantial value creation through operational improvements, positions it uniquely in the marketplace. This strategy allows Compass Diversified to leverage its expertise across various sectors, reducing reliance on any single industry.
Investors looking for diversified exposure in mid-market industrial and branded consumer businesses might find Compass Diversified an attractive option. Its strategic acquisitions, robust dividend yield, and significant upside potential as indicated by analyst targets make it a company worth watching closely.
As with any investment, potential investors should consider the underlying risks, including the high payout ratio and negative earnings per share, while weighing the potential for future growth and shareholder returns. Compass Diversified’s track record and strategic positioning suggest it could be a rewarding addition to a diversified investment portfolio.
