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1. Company Snapshot

1.a. Company Description

Compass Diversified is a private equity firm specializing in add on acquisitions, buyouts, industry consolidation, recapitalization, late stage and middle market investments.It seeks to invest in niche industrial or branded consumer companies, manufacturing, distribution, consumer products, business services sector, safety & security, electronic components, food, foodservice.The firm prefers to invest in companies based in North America.


It seeks to invest between $100 million and $800 million in companies with an EBITDA between $15 million to $80 million.It seeks to acquire controlling ownership interests in its portfolio companies and can make additional platform acquisitions.The firm prefer to have majority stake in companies.


The firm invests through its balance sheet and typically holds investments between five to seven years.Compass Diversified was founded in 2005 and is based in Westport, Connecticut with an additional office in Costa Mesa, California.

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1.b. Last Insights on CODI

Negative drivers behind Compass Diversified's recent performance include the retirement of Director James Bottiglieri, which may lead to a loss of institutional knowledge and expertise. Additionally, the company's Q4 2024 earnings release did not provide a comprehensive view of its financial performance, as it only reported a 14% year-over-year sales growth and 25% adjusted EBITDA growth, without disclosing detailed revenue breakdowns.

1.c. Company Highlights

2. Compass Diversified's Q3 Results: A Deeper Dive into Performance and Outlook

Compass Diversified (CODI) reported its fiscal 2025 third-quarter results, with net sales of $472.6 million, up 3.5% year-over-year. The company's GAAP net loss for the quarter was $87.2 million, which includes expenses related to the Lugano investigation and operations. The actual EPS came out at '-0.97811', relative to estimates at '0.7', indicating a significant miss. Year-to-date, consolidated net sales were $1.4 billion, an 8.6% increase over the prior year, or 6.1% excluding Lugano's impact.

Publication Date: Jan -15

📋 Highlights
  • Quarterly Sales Growth:: Net sales rose 3.5% YoY to $472.6M, with year-to-date consolidated sales up 8.6% to $1.4B (6.1% excluding Lugano).
  • Adjusted EBITDA Growth:: Subsidiary adjusted EBITDA increased 5.8% to $257M, driven by double-digit gains at Honey Pot, Sterno, and LifePhone acquisition.
  • 2026 Deleveraging Targets:: Tightened EBITDA guidance to $335–355M; expects year-end leverage of 5.3x, aiming to reduce via organic growth and asset sales.
  • Arnold Recovery Outlook:: Supply chain disruptions from China caused a $6–8M EBITDA hit, but normalization expected by Q4 2025, with growth potential into 2026.
  • Free Cash Flow Projections:: Anticipates $50–100M in 2026 free cash flow post-Lugano, enabling debt reduction and strategic capital returns.

Segment Performance

The company's subsidiary adjusted EBITDA, excluding Lugano, was $257 million, a 5.8% increase over 2024, driven by double-digit growth at the Honey Pot and Sterno, as well as Altor's acquisition of LifePhone. CODI's consumer vertical sales grew low single digits, with the Honey Pot driving continued share gains and category growth. As CEO Elias Sabo highlighted, "the company's commitment to generating sustained, long-term shareholder value, with a focus on reducing leverage, investing for growth, and returning capital to shareholders."

Outlook and Guidance

The company expects to organically deleverage in 2026 through solid growth in subsidiary adjusted EBITDA. CODI tightened its expected subsidiary adjusted EBITDA range, excluding Lugano, to between $335 million and $355 million. The company's year-end leverage ratio, excluding Lugano results, is expected to be around 5.3 times. Analysts estimate next year's revenue growth at 6.9%, indicating a positive outlook.

Valuation and Leverage

With a current P/E Ratio of -2.83 and EV/EBITDA of 20.54, the market is pricing in significant growth expectations. The Net Debt / EBITDA ratio stands at 16.79, indicating a high level of leverage. However, the company aims to deleverage organically and through asset sales, with a focus on maximizing shareholder value.

Supply Chain Disruptions and Growth Opportunities

The trade tensions with China caused significant issues, particularly with rare earth materials, resulting in a $6-8 million EBITDA hit. However, China has since loosened export controls, and products are flowing back out of China. Arnold, which works with aerospace and defense customers, is well-positioned to secure additional business and drive growth. The company expects normalization in the fourth quarter and a backlog to drive growth into 2026.

Free Cash Flow and Deleveraging

The company expects to generate $50-100 million of free cash flow in 2026, driven by the elimination of Lugano, which was a significant user of working capital, and the absence of a common dividend. This will enable the company to organically delever and pursue strategic delevering activities, with a focus on reducing leverage and returning capital to shareholders.

3. NewsRoom

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Compass Diversified Announces Appointment of Eric Weis as President of PrimaLoft; Elevation of Shawn Neville to PrimaLoft Board Chair

13:10

Source: globenewswire.com

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Compass Diversified Subsidiary The Honey Pot Co. Announces Appointment of Janis Smith-Gomez as Chair of the Board

Feb -19

Source: globenewswire.com

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Compass Diversified Announces Fourth Quarter and Full Year 2025 Earnings and Conference Call Information

Feb -18

Source: globenewswire.com

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VanEck Biotech ETF (NASDAQ:BBH) & Compass Diversified (NYSE:CODI) Financial Survey

Feb -12

Source: defenseworld.net

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Altor Completes Sale-Leaseback Transaction Generating Approximately $11 Million in Proceeds

Jan -28

Source: globenewswire.com

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American Greed: Show Me The Honest Dividends

Jan -25

Source: seekingalpha.com

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Compass Diversified (CODI) Q3 2025 Earnings Call Transcript

Jan -15

Source: seekingalpha.com

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Compass Diversified Reports Third Quarter 2025 Financial Results

Jan -14

Source: globenewswire.com

4. Business Breakdown

4.a. Revenues by Country

4.b. Revenues by Segment

5. Expected revenues mid-term growth (7.60%)

6. Segments

5.11

Expected Growth: 7.5%

Compass Diversified's 7.5% growth, driven by 5.11's strong brand recognition, increasing demand for outdoor gear, and strategic acquisitions. The company's diversified product portfolio, including firearms, camping equipment, and cutlery, also contributes to its growth. Additionally, 5.11's focus on innovation, quality, and customer loyalty has enabled it to maintain a strong market position and drive sales growth.

Sterno

Expected Growth: 7.2%

Sterno's 7.2% growth is driven by increasing demand for outdoor cooking and recreational products, expansion into e-commerce and online marketplaces, and strategic acquisitions. Additionally, the company's focus on innovation, quality, and customer service has led to market share gains and pricing power.

Lugano

Expected Growth: 7.8%

Lugano's 7.8% growth is driven by increasing demand for premium outdoor furniture, expansion into new distribution channels, and strategic partnerships. Additionally, the company's focus on product innovation, quality, and customer service has led to strong brand loyalty and repeat business. Furthermore, Compass Diversified's operational expertise and resources have enabled Lugano to optimize its supply chain and improve margins.

Altor Solutions

Expected Growth: 7.9%

Altor Solutions' 7.9% growth is driven by increasing demand for cybersecurity services, expansion into new markets, and strategic acquisitions. The company's expertise in threat detection and incident response, coupled with Compass Diversified's resources, has enabled Altor to capitalize on the growing need for robust cybersecurity solutions.

Velocity Outdoor

Expected Growth: 8.1%

Velocity Outdoor's 8.1% growth is driven by increasing demand for outdoor recreational products, strategic acquisitions, and expansion into new markets. The company's diversified portfolio of brands, including Crosman and Ravin, has enabled it to capitalize on trends in camping, hunting, and outdoor activities. Additionally, investments in e-commerce and digital marketing have enhanced customer engagement and driven sales growth.

Arnold

Expected Growth: 7.6%

Arnold's 7.6% growth is driven by increasing demand for outdoor recreation, strategic acquisitions, and expansion into adjacent markets. The company's diversified portfolio, including camping, water sports, and outdoor gear, benefits from rising consumer spending on experiences. Additionally, Arnold's focus on e-commerce and digital marketing enhances its online presence, further fueling growth.

BOA

Expected Growth: 7.4%

BOA's 7.4% growth is driven by increasing demand for outdoor recreation, strategic acquisitions, and expansion into adjacent markets. Compass Diversified's diversified portfolio and operational expertise have enabled BOA to capitalize on trends in camping, hiking, and outdoor enthusiasts, resulting in sustained revenue growth.

Ergobaby

Expected Growth: 7.7%

Ergobaby's 7.7% growth is driven by increasing demand for baby carriers, expansion into new markets, and strategic product innovation. The brand's focus on comfort, ergonomics, and style resonates with parents seeking convenient and healthy babywearing solutions. Additionally, Compass Diversified's operational expertise and resources have enabled Ergobaby to optimize its supply chain and improve distribution, further fueling growth.

PrimaLoft

Expected Growth: 7.3%

PrimaLoft's 7.3% growth is driven by increasing demand for high-performance outdoor gear, strategic partnerships with key brands, and expansion into new markets such as athleisure and workwear. Additionally, the company's focus on sustainability and eco-friendly products resonates with environmentally conscious consumers, contributing to its growth momentum.

7. Detailed Products

5.11 Tactical

Manufacturer of tactical gear and apparel for law enforcement, first responders, and outdoor enthusiasts

BAUER

Manufacturer of hockey gear and equipment

Crosman

Manufacturer of airguns, ammunition, and accessories

Sterno

Manufacturer of portable food warming products and butane-powered appliances

Liberty Safe

Manufacturer of home and gun safes

Velocity Outdoor

Manufacturer of archery and outdoor gear

8. Compass Diversified's Porter Forces

Forces Ranking

Threat Of Substitutes

The threat of substitutes for Compass Diversified is moderate due to the availability of alternative products and services in the market.

Bargaining Power Of Customers

The bargaining power of customers is low due to the diversified nature of Compass Diversified's business, making it difficult for customers to negotiate prices.

Bargaining Power Of Suppliers

The bargaining power of suppliers is moderate due to the presence of multiple suppliers in the market, but Compass Diversified's diversified business reduces its dependence on any one supplier.

Threat Of New Entrants

The threat of new entrants is high due to the relatively low barriers to entry in the industries in which Compass Diversified operates.

Intensity Of Rivalry

The intensity of rivalry is moderate due to the presence of several competitors in the market, but Compass Diversified's diversified business and strong brand presence help to mitigate the impact of rivalry.

9. SWOT Analysis

Strength

Weaknesses

Opportunities

Threats

10. Capital Structure

10.a. Balance Sheet

10.b. Weighted Average Cost of capital

Value
Debt Weight 55.75%
Debt Cost 3.95%
Equity Weight 44.25%
Equity Cost 12.41%
WACC 7.69%
Leverage 126.01%

11. Quality Control: Compass Diversified passed 2 out of 9 key points

12.a Historical Valuation

12.b Price/Earnings Ratio

12.c Margin Valuation

12.d Peers Valuation

Peers Group Analysis

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RCM Technologies

A-Score: 5.4/10

Value: 6.6

Growth: 8.3

Quality: 5.9

Yield: 0.0

Momentum: 6.5

Volatility: 5.0

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Steel Partners

A-Score: 5.1/10

Value: 7.7

Growth: 8.8

Quality: 6.4

Yield: 0.0

Momentum: 3.5

Volatility: 4.3

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Tejon Ranch

A-Score: 5.0/10

Value: 8.0

Growth: 2.9

Quality: 3.8

Yield: 0.0

Momentum: 6.0

Volatility: 9.0

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Compass Diversified

A-Score: 4.6/10

Value: 9.5

Growth: 2.2

Quality: 4.0

Yield: 10.0

Momentum: 0.0

Volatility: 2.0

1-Year Total Return ->

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FTAI Infrastructure

A-Score: 4.3/10

Value: 9.4

Growth: 4.1

Quality: 4.0

Yield: 5.0

Momentum: 1.0

Volatility: 2.3

1-Year Total Return ->

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NN

A-Score: 2.6/10

Value: 8.3

Growth: 1.6

Quality: 2.1

Yield: 0.0

Momentum: 1.0

Volatility: 2.3

1-Year Total Return ->

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Peers Metrics

12.e Scoring Insights

12.f DCF BETA

Parameters

Short Term Growth

Short term Time

Long-Term Growth

WACC

Target Price

7.81$

Current Price

7.82$

Potential

-0.00%

Expected Cash-Flows