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Compass Diversified Holdings Message Board

  • aklein_2005 aklein_2005 Jun 25, 2009 1:35 PM Flag

    Dow up 180, but Codi

    can't move more than a couple of points.
    That's pretty pathetic!!

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    • I've owned it before as many other BDC's. I've escaped most of the carnage but I am trying to be very careful and that is why I appreciate our discussion. I spoke to a founder officer of another BDC earlier this week. He did not like PSEC because it was all in one market segment.
      I spoke to PSEC several years ago because there was some stigma around the guy running it. There was a lawsuit that I don't think went anywhere but it made me leary. It is hard to argue with the insider buying.
      Did you see how NGPC has been crushed?

    • Another poster brought up PSEC. That has much more favorable "math" than CODI. First off they are in the same business. They lend and take equity in micro-caps. They are at $9.5 per share. They will "CAD" $1.40 They will pay out $1.60. (like CODI, overpaying CAD for the time being). They just raised 250 million at Libor plus 4 points without an equity dilution. The debt offering was oversold. Their market cap is under 500 million (like CODI).

    • Good points.I can't disagree but my only other points would be:
      For a financially healthy company like CODI that has liitle risk at this point of having any serious financial problems, what would an invesor pay for a yield in this situation. If I take the .75-1.00 (until further notice mid point of .875) it is a CAD return of 11% currently. Maybe that is fair value. At $5 it is 17.5%. Everyone has to decide what yield is attractive to them that has the potential to grow unlike a bond.
      If CODI can acquire 1 or 2 businesses in the next 12 months then the CAD could be positively impacted. I think this is highly likely since they have cash which many other people do not.

    • Here is the deal. Lets assume CODI can cash flow $1.00 in 2010. That means it is trading at 8 times cash flow. CODI only PAYS 4-5 times cash flow when it buys companies. When they put them all together, and add a management fee, they are only WORTH 4-5 times cash flow just like what the individual companies trade for. Thus, CODI is WORTH $4 or $5 per share. However, Mr. market is assuming CODI can get back to $1.3 in cash flow in 2011-2013 and it is attaching a premium 6x multiple to it, giving it the $7.8 share price. Most professionals are buying stocks based on a recovery (2011-2013) earnings or other identifying multiples.I am a long term buyer (5-15 years) I have lots of CODI because I like the model. Look for a reduced pay out of $1.00 in 2011 (80% of CAD of $1.30), a price of 8-10 over the next 2-3 years. Then, in 2013-2015 a move to 11-15 with a solid resumption of $1.3-$1.70 in dividend.

      • 2 Replies to buylowsellhighalso
      • That's a good analysis but where are you getting the $1.00 per share in cash flows? Looks to me they can generate a significantly higher number. 1st quarter cash from operations was like $25MM so annualize that and seems like they could do $100MM before any big adjustments such as for sales of businesses. Can you help us reconcile the $25MM 1st quarter to only having $37MM annually?

        Part of the issue seems they subtract the gains on sale of business from operating cash flow while some might argue a business that is in the busienss of buying and selling businesses that is a legitimate part of operating cash flows. Unless cash flow is really seasonal, judging by last quarter cash flow report it looks way below fair value.

      • According to your thesis they get no value for their past sales or potential future sales of higher than 4-5 times cash flow. In additon, if you believe they will earn CAD of $1 in '09 which should be considered a very very difficult environment, that 12.7% return seems pretty attractive in todays low rate world. It seems like there is much more upside potential than downside potential. If CAD was $1.70 in an upbeat economy and the stock sold for $20 then I would see how that 8.5% might not be considered a bargain.

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