What Can We Expect for Compass Diversified Holdings LLC (NYSE:CODI) Moving Forward?
Compass Diversified Holdings LLC (NYSE:CODI), a USD$1.00B small-cap, operates in the financial services industry, which tends to draw the more conservative investors who attracted by their steady revenue and the above-average dividend yields. Financial services analysts are forecasting for the entire industry, a somewhat weaker growth of 8.07% in the upcoming year , and an overall negative growth rate in the next couple of years. Unsuprisingly, this is below the growth rate of the US stock market as a whole. Today, I’ll take you through the sector growth expectations, and also determine whether Compass Diversified Holdings is a laggard or leader relative to its financial sector peers. View our latest analysis for Compass Diversified Holdings
What’s the catalyst for Compass Diversified Holdings’s sector growth?
Recently, government and overseas regulators involvement has increased to play a prominent role, closely examining and controlling day-to-day business administration of certain companies. In the previous year, the industry saw growth in the twenties, beating the US market growth of 10.76%. Compass Diversified Holdings lags the pack with its earnings falling by more than half over the past year, which indicates the company will be growing at a slower pace than its diversified financial services peers. As the company trails the rest of the industry in terms of growth, Compass Diversified Holdings may also be a cheaper stock relative to its peers.
Is Compass Diversified Holdings and the sector relatively cheap?
The financial services industry is trading at a PE ratio of 14x, lower than the rest of the US stock market PE of 20x. This illustrates a somewhat under-priced sector compared to the rest of the market. Though, the industry returned a similar 12.32% on equities compared to the market’s 10.45%. Since Compass Diversified Holdings’s earnings doesn’t seem to reflect its true value, its PE ratio isn’t very useful. A loose alternative to gauge Compass Diversified Holdings’s value is to assume the stock should be relatively in-line with its industry.
What this means for you:
Are you a shareholder? Compass Diversified Holdings has been a financial services industry laggard in the past year. If your initial investment thesis is around the growth prospects of Compass Diversified Holdings, there are other financial services companies that have delivered higher growth, and perhaps trading at a discount to the industry average. Consider how Compass Diversified Holdings fits into your wider portfolio and the opportunity cost of holding onto the stock.
Are you a potential investor? If Compass Diversified Holdings has been on your watchlist for a while, now may be a good time to dig deeper into the stock. Although its growth has delivered lower growth relative to its financial services peers in the near term, the market may be pessimistic on the stock, leading to a potential undervaluation. Before you make a decision on the stock, I suggest you look at Compass Diversified Holdings’s future cash flows in order to assess whether the stock is trading at a reasonable price.
For a deeper dive into Compass Diversified Holdings’s stock, take a look at the company’s latest free analysis report to find out more on its financial health and other fundamentals. Interested in other financial stocks instead? Use our free playform to see my list of over 600 other financial companies trading on the market.
To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned.
