For investors seeking both income and growth potential, D/B/A Compass Diversified Holdings (NYSE: CODI) presents a compelling opportunity. With a market cap of $1.19 billion, this industrial conglomerate operates a diversified portfolio, primarily focusing on middle-market companies in North America. Its strategic investments span various sectors, including branded consumer products, industrial, and business services, positioning it as a versatile player in the private equity space.
At a current price of $15.85, CODI’s shares are trading at the low end of their 52-week range of $15.85 to $24.27, suggesting potential for appreciation. Analysts certainly see room for growth, with a price target range of $23.00 to $36.00, and an average target of $30.29, indicating a potential upside of approximately 91.08%. This optimistic outlook is underpinned by a solid buy rating from seven analysts, with no sell ratings on record.
One of the standout features of CODI is its attractive dividend yield of 5.91%, which appeals to income-focused investors. However, the sustainability of this yield could be a concern given the high payout ratio of 404.62%. While such a high payout ratio might raise eyebrows, it is essential to consider the company’s strategy and financial health when assessing the risk and reward of this investment.
CODI’s valuation metrics reveal a mixed picture. The forward P/E ratio of 5.89 suggests the stock might be undervalued relative to its earnings potential, but the lack of a trailing P/E ratio and negative earnings per share (EPS) of -1.25 highlight underlying challenges. The company’s revenue growth of 31.10% is impressive, yet the negative free cash flow of approximately $93.5 million necessitates a closer examination of its operational efficiency and cash management practices.
Technically, CODI is currently trading below its 50-day and 200-day moving averages of $19.94 and $21.53, respectively, which could indicate a bearish sentiment in the short term. However, the Relative Strength Index (RSI) of 33.56 suggests the stock is approaching oversold territory, potentially signaling an upcoming reversal.
Compass Diversified’s business model is centered around acquiring controlling interests in companies with strong market positions and growth prospects. Its strategy of holding investments for five to seven years allows it to drive value creation through operational improvements and strategic acquisitions. This approach has helped CODI maintain a diversified and resilient portfolio, capable of weathering economic fluctuations.
Investors should weigh the potential upside and robust dividend against the risks associated with CODI’s financial metrics and market conditions. As with any investment, due diligence and consideration of personal financial objectives are paramount when evaluating CODI as a part of your portfolio. Its combination of growth potential and income generation makes it a noteworthy candidate for investors with a diversified investment strategy.
