Breaking Down Compass Diversified (CODI) Financial Health: Key Insights for Investors

You're looking at Compass Diversified (CODI) right now, trying to figure out if its diversified holding company structure can still deliver steady returns, and honestly, the numbers show a mixed, but actionable, picture.

On one hand, the business model is generating serious cash flow, with trailing twelve months (TTM) sales hitting $2,198.23 million as of November 2025, plus management is projecting a solid full-year 2025 Subsidiary Adjusted EBITDA (earnings before interest, taxes, depreciation, and amortization) between $570 million and $610 million. That's a powerful engine. But to be fair, you can't ignore the recent Chapter 11 bankruptcy filing of their subsidiary, Lugano Holding, which is a clear near-term risk that spooked the market. Still, the balance sheet shows strong liquidity with a current ratio of 4.07, even with a debt-to-equity ratio of 1.37 reflecting significant leverage. We need to break down how the strength in the core portfolio balances out that Lugano risk and what it means for your capital allocation strategy.

Revenue Analysis

You need a clear picture of where Compass Diversified (CODI) makes its money, especially with the market's focus on its diversified portfolio. The direct takeaway is that CODI's revenue engine remains heavily skewed toward its Branded Consumer businesses, and while overall growth is projected, a recent subsidiary bankruptcy introduces a significant near-term risk to that mix.

For the 2025 fiscal year, analyst consensus projects total consolidated revenue to hit approximately $2.41$ billion, an expected year-over-year increase of about 9.6% from the 2024 actual net sales of $2.2$ billion. This growth rate is solid for a diversified holding company, but you must look deeper than the top-line number to understand the underlying drivers and risks.

Here's the quick math on the primary revenue sources: CODI operates mainly through two distinct verticals: Branded Consumer and Industrial. The Branded Consumer segment is the clear revenue leader, a trend that continues into 2025. This segment includes companies like BOA and PrimaLoft, which have shown resilience. The Industrial segment, however, has faced a slower environment.

The contribution of these segments to the projected 2025 revenue is starkly different:

• Branded Consumer: Projected to contribute approximately $1.64$ billion, representing around 68% of total revenue.
• Industrial: Projected to contribute approximately $0.80$ billion, representing around 32% of total revenue.

What this estimate hides is the significant shift in the Branded Consumer vertical. The acquisition of The Honey Pot Co. in January 2024 was a major driver for the 2024 sales growth and provides a higher base for 2025. But, the November 2025 Chapter 11 bankruptcy filing of its subsidiary, Lugano Holding, is a critical, fresh change that will defintely impact the Q4 2025 revenue and the 2026 outlook. Lugano, a high-end jewelry brand, was a key contributor to the segment's strength, so its financial distress is a serious headwind to the Branded Consumer's dominance. This is a classic example of a diversified model showing its limits when a star asset falters.

To fully grasp the implications of these shifts, especially the Lugano development, you need to see the full financial picture. You can find a deeper dive into the balance sheet and valuation here: Breaking Down Compass Diversified (CODI) Financial Health: Key Insights for Investors.

Profitability Metrics

When we look at Compass Diversified (CODI), the profitability picture is a tale of two numbers: the trailing twelve months (TTM) reality and the forward-looking guidance. The TTM data, which runs up to November 2025, shows a consolidated Gross Margin of a strong 45.51%, which is excellent. However, the bottom line tells a different story, with the TTM Operating Margin at 10.84% and the Net Margin a razor-thin 0.58%.

Here's the quick math on what management expects for 2025: based on the full-year 2024 Net Sales of $2.2 billion and an analyst-forecasted revenue growth of 9.7% for 2025, we project 2025 revenue to be around $2.4134 billion. If you take the midpoint of the company's 2025 Adjusted Earnings forecast-$180 million-that implies a forward-looking Adjusted Net Profit Margin of roughly 7.46%. That's a significant jump, but it's crucial to remember that this 'Adjusted' figure strips out non-recurring costs.

• Gross Margin (TTM): 45.51% (Strong core product pricing)
• Operating Margin (TTM): 10.84% (Operating costs are a major factor)
• Net Margin (TTM): 0.58% (Extremely low, reflecting recent issues)

The Lugano Impact on Net Profit Trends

The low TTM Net Margin of 0.58% is defintely a red flag, but it's a backward-looking number distorted by significant, non-recurring issues. The primary drag was the Lugano subsidiary, which filed for Chapter 11 bankruptcy in November 2025. Lugano's financial results will no longer be consolidated starting in the fourth quarter of 2025, which should remove a substantial headwind from CODI's reported net income going forward. This is why the 2025 Adjusted Earnings forecast of $170 million to $190 million is so much higher than the TTM net income-it reflects the core profitability of the remaining, healthier portfolio.

The trend shows a shift. While full-year 2024 Net Income was only $47.4 million (down from a high base in 2023 due to asset sale gains), the core business's operational engine, measured by Adjusted EBITDA, grew by over 30% in 2024 to $424.8 million. Management is guiding for 2025 Subsidiary Adjusted EBITDA to be between $570 million and $610 million, a clear sign of expected operational strength.

Operational Efficiency and Industry Comparison

CODI's operational strength lies in its portfolio's ability to maintain a high Gross Margin of 45.51%. This metric shows the businesses are very efficient at managing their Cost of Goods Sold (COGS) or have strong pricing power. For comparison, a typical Apparel Manufacturing company might see a Gross Margin around 49.3%, and an Aerospace & Defense firm around 28.8% as of November 2025. CODI's consolidated margin sits right in the middle, reflecting the mix of its high-margin branded consumer businesses (like BOA and PrimaLoft) and its industrial segment.

The drop from the 45.51% Gross Margin to the 10.84% Operating Margin signals that Selling, General, and Administrative (SG&A) expenses are substantial. This is the cost of managing a diversified holding company-you have to fund the corporate overhead, plus the non-production costs of all those separate businesses. The challenge for CODI is to keep growing the gross profit dollar figure faster than the corporate SG&A grows.

To understand the full context of the company's structure, you should also be Exploring Compass Diversified (CODI) Investor Profile: Who's Buying and Why?

The key takeaway is that the core businesses are profitable at the gross level, but the corporate structure and recent subsidiary issues have historically crushed the net income. The market is now looking for CODI to deliver on its 2025 Adjusted Earnings guidance, which hinges on the strength of its remaining portfolio.

Next Step: Portfolio Managers need to model the $570 million to $610 million Subsidiary Adjusted EBITDA guidance against their own estimates for corporate overhead to stress-test the $170 million to $190 million Adjusted Earnings forecast.

Debt vs. Equity Structure

You need to know how Compass Diversified (CODI) is funding its operations, and the short answer is that its leverage is high, especially when viewed against the backdrop of its current financial reporting issues. A recent analysis places the company's Debt-to-Equity (D/E) ratio at approximately 1.37, or 137%, as of late 2025. This ratio is a critical measure of financial leverage (gearing) and signals a significant reliance on debt relative to shareholder capital.

Here's the quick math: a D/E of 1.37 means that for every dollar of shareholder equity, CODI has about $1.37 in total liabilities. To be fair, this is a common structure for diversified holding companies, but it is substantially higher than the 0.95 average for the broader Asset Management industry in November 2025. Still, the most pressing issue in 2025 isn't the ratio itself, but the lack of fully audited, filed financial statements due to an internal investigation.

• CODI's D/E ratio is 1.37, indicating high leverage.
• The company uses a permanent capital base to invest in subsidiary growth.
• The focus shifted to debt concessions, not new issuances, in 2025.

The company's financing strategy is built on a permanent capital base, allowing it to provide both debt and equity capital to its subsidiaries, which include a mix of branded consumer and industrial businesses. This model is designed to maximize long-term cash flow and value creation, but it also creates a complex web of subsidiary-level debt that rolls up to the parent company.

Near-Term Debt Risks and Refinancing Activity

The biggest near-term risk is not a standard debt maturity, but the ongoing financial uncertainty. The company has been unable to file its quarterly reports for March, June, and September 2025, which means we don't have precise, official short-term and long-term debt figures for the year. Instead of routine debt issuances, 2025 has been defined by credit concessions.

Compass Diversified secured a second forbearance agreement with its lenders, extending the period until November 2025, following an investigation into financial irregularities at its Lugano Holdings subsidiary. This is a major red flag, as it shows the company is relying on lender cooperation to avoid a default on its credit facilities. The agreement did, however, increase the availability under its revolving credit facility from $40 million to $60 million during that forbearance period.

The situation escalated in November 2025 when Lugano Holding, Inc. filed for Chapter 11 bankruptcy. CODI, as the senior secured lender to Lugano, is providing debtor-in-possession financing to support the process, which will result in Lugano no longer being consolidated in CODI's financial results starting in the fourth quarter of 2025. This move will simplify the balance sheet going forward, but it highlights a significant capital loss. The company is defintely focused on regaining compliance with the New York Stock Exchange (NYSE) by January 20, 2026, which is its immediate, critical deadline. You can learn more about the company's strategic direction here: Mission Statement, Vision, & Core Values of Compass Diversified (CODI).

Liquidity and Solvency

You're looking at Compass Diversified (CODI) and seeing some strong headline liquidity numbers, but you need to look past the ratios to the underlying risks. The short-term picture shows ample coverage for immediate obligations, yet the recent subsidiary bankruptcy and financial restatement issues introduce a level of uncertainty that a simple ratio calculation can't capture. The key takeaway is that CODI's liquidity is currently strong on paper, but its solvency-the ability to meet long-term debt-is under pressure due to high leverage and the Lugano situation.

Assessing Compass Diversified's Liquidity

When we look at liquidity positions, the Current Ratio and Quick Ratio are your first line of defense. As of late 2024, Compass Diversified reported a robust Current Ratio of 4.07. This means the company has over four dollars of current assets (cash, receivables, inventory) for every dollar of current liabilities. The Quick Ratio, which strips out inventory-the least liquid current asset-was still a healthy 1.57. Honestly, these ratios signal significant liquidity headroom, far exceeding the industry median of 1.56. A ratio this high can also suggest that the company might not be using its current assets as efficiently as possible, but in the context of recent volatility, a liquidity cushion is defintely a strength.

Here's the quick math on working capital: based on mid-2024 figures, CODI held approximately $1.52 billion in total current assets against about $361 million in total current liabilities. This results in a positive working capital of roughly $1.159 billion. The trend in working capital has been supported by the company's diversified portfolio, but the recent Chapter 11 filing of its luxury jeweler subsidiary, Lugano Holding, Inc., in November 2025, will impact future consolidated numbers. This is a critical point: strong liquidity at the holding company level is currently being used to manage a crisis at a subsidiary.

• Current Ratio: 4.07-Strong coverage for short-term debt.
• Quick Ratio: 1.57-Ample liquid assets without relying on inventory.
• Working Capital: Roughly $1.159 billion (mid-2024)-Significant buffer.

Cash Flow Statement Overview

The cash flow statement gives you the real picture of where the money is moving. In Q4 2024, we saw net cash from continuing operating activities improve to roughly $9.97 million, showing a positive turn in cash generation from the core businesses. However, investing cash flow remains a consistent outflow, which is expected as CODI uses acquisitions and capital expenditures (capex) to drive growth across its portfolio of subsidiaries. Financing cash flow was a net inflow of about $49.7 million in Q4 2024, largely due to new debt issuance to support liquidity and working capital needs. This is a classic private equity model: use debt to fund growth and acquisitions, but it also signals a reliance on the credit markets.

Near-Term Liquidity Concerns and Strengths

The biggest strength is the liquidity held outside of the troubled subsidiary. CODI's CEO has stated that the other eight subsidiaries continue to generate strong cash flow. Plus, the company has about $102.71 million in cash and equivalents on the balance sheet. The major concern, however, is the fallout from the Lugano investigation, which led to a notice from the NYSE for failing to file its Q1 2025 10-Q on time. This accounting uncertainty, coupled with a high total debt load of approximately $1.77 billion, means the market is looking past the strong ratios and focusing on the long-term solvency risk. The company has taken decisive action-slashing management fees and suspending shareholder distributions-to preserve cash, which is a clear, actionable step to manage the risk. You can read more about the investor base and who is holding the bag in Exploring Compass Diversified (CODI) Investor Profile: Who's Buying and Why?

Valuation Analysis

You're looking at Compass Diversified (CODI) right now and seeing a stock price that has cratered, and you're asking the right question: Is this a deep value opportunity, or a value trap? The short answer is that the market is pricing in significant distress, which creates a massive disconnect between the current price and the consensus long-term target, suggesting it is undervalued, but with very real near-term risks.

The stock's performance tells the story of that distress. Compass Diversified shares were trading around $23.08 at the start of January 2025, but by mid-November 2025, the price had plummeted by over 75% to approximately $5.75. The 52-week high was $24.32 in December 2024, while the 52-week low of $5.30 was just hit in November 2025. This sharp decline is largely tied to the Chapter 11 bankruptcy filing of its Lugano Holding subsidiary in November 2025, which has dramatically impacted the trailing twelve months (TTM) financials.

Is Compass Diversified (CODI) Overvalued or Undervalued?

When you look at the core valuation ratios, the picture is messy, but it points toward a deeply discounted asset. The TTM Price-to-Earnings (P/E) ratio is currently negative, around -4.59, because the company is reporting losses due to the Lugano situation. A negative P/E is a red flag, but it's a backward-looking metric reflecting a one-time event. More telling is the Price-to-Book (P/B) ratio, which sits at a very low 0.49. Here's the quick math: A P/B below 1.0 suggests the stock is trading for less than the value of its net assets (assets minus liabilities), which is a classic sign of undervaluation in a holding company structure like Compass Diversified.

The Enterprise Value-to-EBITDA (EV/EBITDA) ratio is also distorted, with a TTM figure of -108.52 as of mid-November 2025, again due to negative TTM EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) from the recent subsidiary issues. However, forward-looking analyst estimates for the 2025 fiscal year paint a different picture, projecting a P/E of 6.88x and an EV/EBITDA of just 0.87x, assuming the core, non-Lugano businesses stabilize and recover their profitability. That's defintely cheap.

• P/E (TTM): -4.59 (Distorted by one-time losses)
• P/B: 0.49 (Strong indicator of undervaluation)
• EV/EBITDA (Forward 2025): 0.87x (Extremely low, suggesting deep value)

Dividend and Analyst Consensus

The dividend story is complex, but compelling for income investors. Compass Diversified has an annualized dividend of $1.00 per share. Based on the depressed November 2025 stock price, this translates to an extraordinarily high dividend yield of approximately 17.64%. What this estimate hides, though, is the sustainability. The payout ratio based on adjusted earnings is around 21.5%, but based on Free Cash Flow (FCF), it's 100%, and the 2025 distribution rate is forecast at 110%, meaning they are paying out more than they are generating in FCF, which is not sustainable long-term without asset sales or new debt.

The analyst community is split, but the majority see significant upside. The consensus rating is a mix, leaning toward a 'Buy' or 'Outperform' but with some 'Hold' ratings mixed in. The consensus price target is around $26.00, which implies a staggering upside of over 350% from the current price. This wide gap between the current price and the target is your opportunity, but it's also a measure of the risk involved in waiting for the underlying businesses to execute their turnaround plan.

The action here is to dig into the details of the non-Lugano subsidiaries-the branded consumer and industrial businesses-to see if their performance justifies the analyst's optimism. You can find more of that deep dive at Breaking Down Compass Diversified (CODI) Financial Health: Key Insights for Investors. Your next step should be to model a worst-case scenario where the dividend is cut to $0.50 and see if the remaining capital appreciation potential still makes sense for your portfolio.

Risk Factors

You need a clear-eyed view of Compass Diversified (CODI) right now, and the primary risks are not just market-driven; they are operational and reporting-focused. The most immediate concern is the fallout from the Lugano Holding, Inc. situation, which creates material uncertainty around the company's financial statements and regulatory compliance. This is a near-term distraction that demands attention, even though the other eight subsidiaries are reportedly performing well.

Operational and Financial Reporting Risks

The core financial risk is the ongoing process of restating past results and filing delayed reports. CODI has disclosed non-reliance on its financial statements for fiscal years 2022, 2023, and 2024, and is late in filing its quarterly reports (Form 10-Qs) for the first three quarters of 2025. This stems from an Audit Committee investigation that preliminarily identified irregularities in Lugano's financing, accounting, and inventory practices. The lack of fully reliable recent financial data makes valuation inherently more difficult, but we still have some key metrics to frame the situation.

Here's the quick math on the financial health context: CODI's trailing twelve months sales stand at $2,198.23 million, with a decent operating margin of 10.84%. Still, the Altman Z-Score is currently at 1.03, which places the company in the distress zone-a clear warning sign of potential operational challenges that the Lugano issues only exacerbate.

• Material Weaknesses: The investigation identified control deficiencies that may result in material weaknesses in CODI's internal control over financial reporting.
• Restatement Scope: There is a risk of discovering additional information or needing to restate periods beyond 2022-2024.
• Liquidity Strain: While CODI states it has ample liquidity, it agreed to provide up to $12 million in debtor-in-possession (DIP) financing to Lugano, which is a direct financial commitment to a failing subsidiary.

Strategic and External Risks

The Lugano subsidiary filed for Chapter 11 bankruptcy in November 2025, and as a result, its financial results will no longer be consolidated with CODI's starting in Q4 2025. This isolates the problem, but it also means a reduction in consolidated assets and income recognition moving forward. The market reaction was palpable: the stock saw a drop of 3.6% on the news. As a diversified business conglomerate, CODI also faces sector-specific risks across its branded consumer and industrial businesses, but the current internal issues overshadow these broader industry headwinds.

The most pressing external risk is compliance. The New York Stock Exchange (NYSE) granted CODI an extension for continued listing, but this only runs through January 20, 2026. The company must file its restated financials and delayed 2025 quarterly reports by this date to maintain compliance. Failure to do so could lead to delisting, which would severely impact investor confidence and liquidity. This is a hard deadline. Additionally, the company is dependent on continued cooperation and concessions from its lenders and bondholders while it works to finalize the restatements.

Mitigation Strategies and Next Steps

Management is defintely aware of the risks and has taken clear steps to ring-fence the problem. The Chapter 11 filing for Lugano is a calculated move to maximize value from that subsidiary's assets while protecting the other eight subsidiaries, which are said to be generating strong cash flow. They have secured forbearance extensions with their lenders and are actively working with their independent auditor to complete the restatements and filings by the NYSE deadline. For investors, the focus must be on monitoring those three concrete milestones: the outcome of the Lugano bankruptcy plan, the timing of the independent audit's conclusions, and the NYSE compliance status in January 2026. You can see the long-term strategic vision at Mission Statement, Vision, & Core Values of Compass Diversified (CODI).

Investor Action: Monitor SEC filings for the restated 2022-2024 10-K and the delayed 2025 10-Qs; expect material updates before the January 20, 2026 NYSE deadline.

Growth Opportunities

The core takeaway for Compass Diversified (CODI) right now is that their diversified holding company model is expected to deliver significant earnings growth in 2025, but you must factor in the recent portfolio restructuring. Analysts are forecasting an earnings increase of 114.3% per annum, which is a massive jump, with revenue projected to grow by 9.7% per annum. That kind of growth is driven by more than just market tailwinds.

The growth engine for CODI remains its strategy of acquiring and actively managing controlling interests in North American middle-market businesses. This isn't passive investing; it's about driving operational performance. We saw this play out with the Q4 2024 activity, including the acquisition of Honeypot and the divestiture of non-core assets like Ergobaby and Crosman Airgun. The goal is to rotate capital into higher-growth, better-margin businesses.

Future Revenue and Earnings Estimates

Looking at the numbers for the 2025 fiscal year, the outlook is clear: the market expects a strong performance from the underlying subsidiaries. Management projects subsidiary adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization-a key measure of operating profitability for these types of companies) to land between $570 million and $610 million.

Here's the quick math on earnings: the consensus EPS (Earnings Per Share) forecast for the full year ending December 2025 sits at $2.19. This is a solid step up from the prior year's reported figures, with a more granular forecast expecting EPS to grow to $2.11 in the next year. For the near term, the revenue forecast for an upcoming quarter is around $568.95 million. The company's ability to consistently declare distributions, including on its Series A, B, and C preferred shares, underscores its robust cash flow management.

• Focus on middle-market businesses is key.
• Subsidiary EBITDA is the real performance metric.

Strategic Shifts and Competitive Edge

The strategic initiatives are centered on portfolio optimization, which is a fancy term for cutting the weak links and strengthening the winners. The most immediate and critical strategic development is the Chapter 11 filing of the subsidiary Lugano Holding, Inc. in November 2025. This is a necessary, albeit painful, move to maximize stakeholder value for that specific asset. What this estimate hides is the one-time impact of this separation, but the good news is that Lugano will no longer be consolidated in CODI's financial results starting in the fourth quarter of 2025, which should clean up future reporting.

The competitive advantage for Compass Diversified is its structure: a diversified portfolio strategy that mitigates risk by not being tied to a single industry. They specialize in niche industrial products and branded consumer goods, and their value-add comes from providing strategic guidance and resources to those independent management teams. This approach has historically allowed them to exceed earnings expectations, which is defintely a strong point in a volatile market.

If you want to dig deeper into who is betting on this strategy, you should read Exploring Compass Diversified (CODI) Investor Profile: Who's Buying and Why?

The next step is to watch for the final Q4 2025 report to see the full financial impact of the Lugano deconsolidation and confirm the strong cash flow from the remaining eight subsidiaries.