Institutional owners may take dramatic actions as Compass Diversified's (NYSE:CODI) recent 11% drop adds to one-year losses
To get a sense of who is truly in control of Compass Diversified (NYSE:CODI), it is important to understand the ownership structure of the business. And the group that holds the biggest piece of the pie are institutions with 49% ownership. Put another way, the group faces the maximum upside potential (or downside risk).
And institutional investors saw their holdings value drop by 11% last week. Needless to say, the recent loss which further adds to the one-year loss to shareholders of 35% might not go down well especially with this category of shareholders. Institutions or "liquidity providers" control large sums of money and therefore, these types of investors usually have a lot of influence over stock price movements. As a result, if the downtrend continues, institutions may face pressures to sell Compass Diversified, which might have negative implications on individual investors.
Let's take a closer look to see what the different types of shareholders can tell us about Compass Diversified.
Check out our latest analysis for Compass Diversified
What Does The Institutional Ownership Tell Us About Compass Diversified?
Many institutions measure their performance against an index that approximates the local market. So they usually pay more attention to companies that are included in major indices.
We can see that Compass Diversified does have institutional investors; and they hold a good portion of the company's stock. This implies the analysts working for those institutions have looked at the stock and they like it. But just like anyone else, they could be wrong. It is not uncommon to see a big share price drop if two large institutional investors try to sell out of a stock at the same time. So it is worth checking the past earnings trajectory of Compass Diversified, (below). Of course, keep in mind that there are other factors to consider, too.
It would appear that 11% of Compass Diversified shares are controlled by hedge funds. That catches my attention because hedge funds sometimes try to influence management, or bring about changes that will create near term value for shareholders. The company's largest shareholder is Compass Group Investments, Inc, with ownership of 11%. For context, the second largest shareholder holds about 7.8% of the shares outstanding, followed by an ownership of 6.6% by the third-largest shareholder. Furthermore, CEO Elias Sabo is the owner of 0.8% of the company's shares.
After doing some more digging, we found that the top 21 have the combined ownership of 50% in the company, suggesting that no single shareholder has significant control over the company.
While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. There are a reasonable number of analysts covering the stock, so it might be useful to find out their aggregate view on the future.
Insider Ownership Of Compass Diversified
The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.
I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.
Shareholders would probably be interested to learn that insiders own shares in Compass Diversified. The insiders have a meaningful stake worth US$32m. Most would see this as a real positive. It is good to see this level of investment by insiders. You can check here to see if those insiders have been buying recently.
General Public Ownership
The general public-- including retail investors -- own 37% stake in the company, and hence can't easily be ignored. While this group can't necessarily call the shots, it can certainly have a real influence on how the company is run.
Next Steps:
It's always worth thinking about the different groups who own shares in a company. But to understand Compass Diversified better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 3 warning signs with Compass Diversified (at least 1 which doesn't sit too well with us) , and understanding them should be part of your investment process.
But ultimately it is the future, not the past, that will determine how well the owners of this business will do. Therefore we think it advisable to take a look at this free report showing whether analysts are predicting a brighter future.
NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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