In order to justify the effort of selecting individual stocks, it’s worth striving to beat the returns from a market index fund. But if you try your hand at stock picking, you risk returning less than the market. We regret to report that long term Compass Diversified (NYSE:CODI) shareholders have had that experience, with the share price dropping 32% in three years, versus a market return of about 24%.
Since shareholders are down over the longer term, lets look at the underlying fundamentals over the that time and see if they’ve been consistent with returns.
View our latest analysis for Compass Diversified
Because Compass Diversified made a loss in the last twelve months, we think the market is probably more focussed on revenue and revenue growth, at least for now. Shareholders of unprofitable companies usually desire strong revenue growth. As you can imagine, fast revenue growth, when maintained, often leads to fast profit growth.
In the last three years, Compass Diversified saw its revenue grow by 6.4% per year, compound. Given it’s losing money in pursuit of growth, we are not really impressed with that. The stock dropped 10% during that time. Shareholders will probably be hoping growth picks up soon. But the real upside for shareholders will be if the company can start generating profits.
The image below shows how earnings and revenue have tracked over time (if you click on the image you can see greater detail).
It’s probably worth noting we’ve seen significant insider buying in the last quarter, which we consider a positive. That said, we think earnings and revenue growth trends are even more important factors to consider. You can see what analysts are predicting for Compass Diversified in this interactive graph of future profit estimates.
What About Dividends?
As well as measuring the share price return, investors should also consider the total shareholder return (TSR). The TSR incorporates the value of any spin-offs or discounted capital raisings, along with any dividends, based on the assumption that the dividends are reinvested. Arguably, the TSR gives a more comprehensive picture of the return generated by a stock. As it happens, Compass Diversified’s TSR for the last 3 years was -22%, which exceeds the share price return mentioned earlier. This is largely a result of its dividend payments!
A Different Perspective
Compass Diversified shareholders gained a total return of 18% during the year. But that was short of the market average. On the bright side, that’s still a gain, and it’s actually better than the average return of 7% over half a decade It is possible that returns will improve along with the business fundamentals. It’s always interesting to track share price performance over the longer term. But to understand Compass Diversified better, we need to consider many other factors. Even so, be aware that Compass Diversified is showing 3 warning signs in our investment analysis , and 2 of those shouldn’t be ignored…
Compass Diversified is not the only stock that insiders are buying. For those who like to find lesser know companies this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on American exchanges.
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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.