3 Reasons to Avoid CODI and 1 Stock to Buy Instead

Compass Diversified has gotten torched over the last six months - since March 2025, its stock price has dropped 64.4% to $7.00 per share. This may have investors wondering how to approach the situation.

Is there a buying opportunity in Compass Diversified, or does it present a risk to your portfolio? Get the full stock story straight from our expert analysts, it’s free.

Why Is Compass Diversified Not Exciting?

Despite the more favorable entry price, we're swiping left on Compass Diversified for now. Here are three reasons you should be careful with CODI and a stock we'd rather own.

1. Lackluster Revenue Growth

Long-term growth is the most important, but within financials, a stretched historical view may miss recent interest rate changes and market returns. Compass Diversified’s recent performance shows its demand has slowed as its annualized revenue growth of 1.6% over the last two years was below its five-year trend.

2. Recent EPS Growth Below Our Standards

While long-term earnings trends give us the big picture, we also track EPS over a shorter period because it can provide insight into an emerging theme or development for the business.

Compass Diversified’s EPS grew at an unimpressive 9.2% compounded annual growth rate over the last two years. On the bright side, this performance was higher than its 1.6% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

3. Previous Growth Initiatives Haven’t Paid Off Yet

Return on equity, or ROE, tells us how much profit a company generates for each dollar of shareholder equity, a key funding source for banks. Over a long period, banks with high ROE tend to compound shareholder wealth faster through retained earnings, buybacks, and dividends.

Over the last five years, Compass Diversified has averaged an ROE of 1%, uninspiring for a company operating in a sector where the average shakes out around 10%.

Final Judgment

Compass Diversified isn’t a terrible business, but it isn’t one of our picks. Following the recent decline, the stock trades at 3× forward P/E (or $7.00 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better stocks to buy right now. Let us point you toward one of our all-time favorite software stocks.

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