CODI · Compass Diversified
Conviction · Medium · more likely to lead the S&P 500 over the next three months, by a modest margin
Wrong if: a weekly close below $10.00
Note written ·
Price against the kill line
16.4% clear of its kill line on the 13 November 2026 close.
How to read this
The red mark is the price level of the published kill line: a close through it (a weekly close, on a weekly line) would prove the research note wrong on price. The dot is where the stock closed on 13 November 2026; a dot left of the mark has closed through its line.
The scale is stretched near the line, so close calls are easy to see. More than 8% from the line, the stock reads well clear, with a hollow dot to show the figure is off the drawn scale.
The kill line is the research note's own test. The portfolio sells on business facts, not on a price. How the portfolio decides
Three months against the kill line
Daily closes, to . Red: the kill line, a weekly close below $10.00, on record since 10 November 2026; only a weekly close settles it. The shares are down 3.8% since the close; the S&P 500 is down 2.1% over the same sessions. Figures in the note can cover a different window.
Kill line
A weekly close below $10.00, which would put the shares under the 200-day average and show the market rejecting the deleveraging case. A 2026 Subsidiary Adjusted EBITDA outlook cut below the $330 million low end would also break the case.
Research onlyNot in the portfolio.
Catalyst
Key figures from the filings · Consumer Discretionary
Quarter to 30 June 2026, filed 10 August 2026; valuation at the 13 November 2026 close
- Revenue, latest quarter ($M)
- 424
- Revenue, change on a year (%)
- −11.4
- Gross margin (%)
- 47.2
- Operating margin (%)
- 6.8
- Free cash flow, four quarters ($M)
- 79.6
- Net cash, cash less debt ($M)
- −1,495
- Enterprise value to sales (×)
- 1.3
- Enterprise value to operating income (×)
- 38.3
All filed numbers
What Compass Diversified reports to the SEC in its quarterly and annual filings. Each group states its period and filing date once; a figure dated otherwise says so. Built from the filings known on .
| Quarter to | Revenue ($M) | On a year (%) | Gross margin (%) | Operating margin (%) |
|---|---|---|---|---|
| first filed | 424 | −11.4 | 47.2 | 6.8 |
| first filed | 427 | −5.9 | 44.4 | −0.5 |
| first filed | 469 | −5.1 | 43.1 | 9.8 |
| first filed | 473 | +3.5 | 44.0 | −2.3 |
| first filed | 479 | +12.2 | 43.6 | −5.7 |
| first filed | 454 | +10.5 | 43.2 | 0.8 |
| Pre-tax income ($M) | 127 |
| Net income ($M) four quarters: −94.9 | 81.1 |
| Diluted shares, change on a year (%) against the quarter to 30 June 2025 | 0.0 |
| Operating cash flow ($M) | 111 |
| Capital spending ($M) | 31.7 |
| Free cash flow ($M) | 79.6 |
| Cash and short-term investments ($M) | 87.4 |
| Debt ($M) non-current long-term debt plus current debt | 1,582 |
| Net cash, cash less debt ($M) | −1,495 |
| Deferred revenue ($M) at 31 December 2025, filed 27 February 2026; −100.0% on a year | 0.0 |
| Backlog, orders not yet delivered ($M) | Not reported |
| Receivables ($M) | 186 |
| Inventory ($M) | 376 |
| Shareholders' equity ($M) | 473 |
| Market value ($M) | 876 |
| Enterprise value, market value plus net debt ($M) | 2,370 |
| Enterprise value to sales (×) | 1.3 |
| Enterprise value to operating income (×) | 38.3 |
| Price to earnings (×) | Not meaningful |
| Price to book value (×) | 1.9 |
| Free-cash-flow yield (%) | 9.1 |
Short interest (FINRA, settled 15 October 2026, published 26 October 2026): 6.0% of shares outstanding sold short, 7.7 days of average trading to cover, −1.6% since the previous report.
| Window | Bought | Sold |
|---|---|---|
| 90 daysfrom | $229K | $0 |
| 12 monthsfrom | $2.5M | $0 |
The thesis
Compass Diversified is paying down debt while its continuing businesses grow adjusted earnings, and that favours the shares over the next three months. A further subsidiary sale with proceeds applied to debt would extend the case; a cut to the 2026 outlook would break it.
On 4 November 2026 the company reported covenant leverage of about 4.5 times at 30 September 2026, down from 4.8 times at 30 June 2026. It narrowed its 2026 Subsidiary Adjusted EBITDA outlook to $330 million to $355 million with the midpoint unchanged (Q3 2026 earnings release, 8-K exhibit 99.1). Subsidiary Adjusted EBITDA is the company's adjusted earnings measure before corporate expense, not consolidated profit.
The shares closed at $12.20 on 11 November 2026, after $12.31 on 4 November 2026 and $11.31 on 6 November 2026. The 3-month change is −0.7%. The market has priced in the lower leverage and the tighter outlook range; the close sits 7.9% below the 52-week intraday high of $13.25 on 14 August 2026.
Bullish and bearish views on Compass Diversified
The bull case on Compass Diversified (CODI), in brief: leverage fell again. The bear case: Industrial earnings are shrinking.
Bull case
- Leverage fell again. Covenant leverage was about 4.5 times at 30 September 2026 against 4.8 times at 30 June 2026. Total debt was $1,571.7 million versus $1,890.7 million at 31 December 2025, and cash was $127.2 million (Q3 2026 earnings release, 4 November 2026).
- Continuing businesses grew adjusted earnings. Third-quarter Subsidiary Adjusted EBITDA excluding Lugano and the divested Sterno Food Service business was $89.7 million, up 12.9%. Branded Consumer was $69.8 million, up 27.5% (earnings release, 4 November 2026).
- Outlook floor rose. The 2026 range moved to $330 million to $355 million from $320 million to $365 million. The Branded Consumer range rose to $250 million to $270 million.
- Cash generation improved. Operating cash flow was $51.6 million in the quarter against $10.7 million a year earlier, and nearly $30 million of Lugano bankruptcy distributions went to the senior secured term loan.
- Insiders bought in August. SEC Form 4 filings show open-market purchases of 67,114 shares at $12.42 on 13 August 2026 (Larry Enterline) and 38,051 shares at $13.14 on 14 August 2026 (Glenn Richter). Eugene Kim bought 20,000 shares at $11.47 on 26 August 2026.
Bear case
- Industrial earnings are shrinking. Third-quarter Industrial Adjusted EBITDA was $19.8 million, down 19.6%, and the company lowered its Industrial outlook to $80 million to $85 million (earnings release, 4 November 2026).
- Sales growth is thin. Net sales excluding Lugano and Sterno Food Service rose 0.8% to $422.9 million in the third quarter, so the earnings gain came mainly from the consumer brands and margins.
- Credit rating remains weak. S&P affirmed the B- issuer rating with a negative outlook on 16 September 2026. Revolver availability was $53.0 million at 30 September 2026.
- No yield under the common shares. The common distribution remains suspended and only the Series A, B and C preferred shares are paid. The release says the company will evaluate returning capital as leverage falls, with no date or amount.
- Open Lugano and leadership items. SEC and Department of Justice enforcement exposure and securities class actions from the Lugano fraud are unresolved with no disclosed reserve. CEO Elias Sabo retires on 31 December 2026.
Price setup
The shares closed at $12.20 on 11 November 2026. That is above the 50-day average of $11.10 and the 200-day average of $10.03, both from adjusted daily closes as of 11 November 2026. The closing low for the past year was $4.65 on 2 January 2026.
Closes after the report were uneven. The shares fell from $12.31 on 4 November 2026 to $11.47 on 5 November 2026 and $11.31 on 6 November 2026, then recovered to $11.86 on 9 November 2026, $11.93 on 10 November 2026 and $12.20 on 11 November 2026. The 3-month reference close was $12.28 on 13 August 2026.
Third-quarter earnings per share were $0.05 against a consensus estimate of a $(0.34) loss, and net sales of $422.93 million beat the $410.52 million estimate (Benzinga, 4 November 2026). The shares have returned to the August range, where the insider purchases above were made at $11.47 to $13.14.
Catalysts ahead
- 31 December 2026: CEO Elias Sabo's retirement date; COO Zach Sawtelle takes over with deleveraging as the stated priority. Shows whether the debt-reduction plan continues under the new leadership, and whether another subsidiary sale is announced by year end.
- 1 January 2027: New management-fee terms under the Ninth Amended MSA take effect. Lower fees to the external manager would reduce corporate costs against the Subsidiary Adjusted EBITDA outlook.
What would change the view
A weekly close below $10.00, which would put the shares under the 200-day average and show the market rejecting the deleveraging case. A 2026 Subsidiary Adjusted EBITDA outlook cut below the $330 million low end would also break the case.
The risks this note tracks, each with what would confirm it:
- Industrial weakness spreads and forces a lower full-year outlook. Confirmed by: Compass cuts below the $330 million low end of its 2026 Subsidiary Adjusted EBITDA outlook or lowers the $80 million to $85 million Industrial range again.
- No further subsidiary sale arrives and leverage stalls at about 4.5 times. Confirmed by: no sale is disclosed by the end of 2026 and covenant leverage at the next quarterly report is not below 4.5 times.
- Refinancing pressure persists at a B- rating with a negative outlook. Confirmed by: S&P or another agency downgrades Compass, or the company discloses higher borrowing costs after the 16 September 2026 affirmation.
- Lugano enforcement or litigation produces a material charge. Confirmed by: an SEC, Department of Justice or class-action settlement or reserve is disclosed in a 10-Q or an 8-K.
What it trades with
Compass trades on its own deleveraging and subsidiary-sale progress more than on any sector group. The Industrial segment is exposed to US manufacturing demand and the Branded Consumer segment to consumer spending, so a sharp weakening in either would show in results. Small-cap and credit-sensitive stocks are the closest market comparison, because a B-rated borrower depends on refinancing conditions.
The evidence, claim by claim (8)
- Q3 2026 Subsidiary Adjusted EBITDA excluding Lugano and divested Sterno Food Service was $89.7 million, up 12.9%; Branded Consumer $69.8 million, up 27.5%; Industrial $19.8 million, down 19.6%. Compass Diversified Q3 2026 earnings release (8-K exhibit 99.1) · as of
- Covenant leverage was about 4.5x at 30 September 2026, down from 4.8x at 30 June 2026; total debt was $1,571.7 million versus $1,890.7 million at 31 December 2025. Compass Diversified Q3 2026 earnings release (8-K exhibit 99.1) · as of
- The 2026 Subsidiary Adjusted EBITDA outlook was narrowed to $330 million-$355 million; Branded Consumer raised to $250-$270 million, Industrial lowered to $80-$85 million. Compass Diversified Q3 2026 earnings release (8-K exhibit 99.1) · as of
- Cash and equivalents were $127.2 million and revolver availability $53.0 million; operating cash flow was $51.6 million versus $10.7 million a year earlier. Compass Diversified Q3 2026 earnings release (8-K exhibit 99.1) · as of
- Q3 net sales were $422.93 million against a $410.52 million consensus estimate; earnings per share of $0.05 beat a $(0.34) estimate. Benzinga, Q3 2026 earnings headline · as of
- S&P affirmed Compass Group Diversified Holdings LLC's B- issuer rating with a negative outlook. S&P Global Ratings research update · as of
- Larry Enterline bought 67,114 shares at $12.42 on 13 August 2026, and Glenn Richter bought 38,051 shares at $13.14 on 14 August 2026, in open-market purchases. SEC Form 4 filings · as of
- Compass completed the sale of Sterno's food service business effective 1 May 2026 at a $292.5 million enterprise value, with about $280 million of proceeds applied to senior secured debt. SGB Online report on the Sterno Food Service sale · as of
Sources
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