Investment Thesis
Compass Diversified Holdings exhibits severe operational distress with negative net income of $226.4M despite $1.9B in revenue, indicating fundamental business challenges beyond temporary headwinds. The company is burning cash with negative operating cash flow of $6.8M and negative free cash flow of $51.1M, while carrying excessive debt of $1.9B against only $442M in equity. Interest coverage of 0.1x signals inability to service debt from operations, presenting acute solvency risk.
Strengths
- Solid gross margin of 43.5% indicates reasonable product pricing power and cost management at the production level
- Strong current ratio of 2.42x and quick ratio of 1.26x suggest adequate near-term liquidity to meet obligations
- Revenue growth of 4.8% YoY demonstrates ongoing demand for products despite operational challenges
Risks
- Massive net loss of $226.4M with negative net margin of -12.1% indicates core business is unprofitable at scale
- Negative free cash flow of $51.1M combined with $1.9B debt and only 0.1x interest coverage creates imminent refinancing and solvency risk
- Operating cash flow turning negative at -$6.8M despite positive revenue growth suggests deteriorating operational efficiency and working capital management
- Debt-to-equity ratio of 4.25x represents severe over-leverage with minimal equity cushion for losses
- Return on equity of -51.2% and ROA of -7.4% indicate destruction of shareholder value and poor asset utilization
Key Metrics to Watch
- Operating cash flow trend and path to positive FCF generation
- Quarterly net income progression and ability to return to profitability
- Debt reduction progress and refinancing capacity given negative earnings
- Working capital management and cash conversion cycle improvements
- Operating margin expansion through cost reduction initiatives
Financial Metrics
Revenue
1.9B
Net Income
-226.4M
EPS (Diluted)
$-3.59
Free Cash Flow
-51.1M
Total Assets
3.0B
Cash
68.0M
Profitability Ratios
Gross Margin
43.5%
Operating Margin
0.6%
Net Margin
-12.1%
ROE
-51.2%
ROA
-7.4%
FCF Margin
-2.7%
Balance Sheet & Liquidity
Current Ratio
2.42x
Quick Ratio
1.26x
Debt/Equity
4.25x
Debt/Assets
81.1%
Interest Coverage
0.06x
Long-term Debt
1.9B
Disclaimer: This analysis is generated by AI based on publicly available SEC EDGAR filings.
It does not include stock price data and should not be considered financial advice.
All fundamental data is sourced from SEC public domain filings.
Always conduct your own research before making investment decisions.
Data Source: SEC EDGAR |
Analysis Date: 2026-03-22T18:36:12.668490 |
Data as of: 2025-12-31 |
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