Compass Diversified ( NYSE:CODI ) is doing what it can to push shares higher

With a price-to-sales ratio (or “P/S”) of 0.8x Compass diversified (NYSE:CODI) may be sending bullish signals right now, as nearly half of all diversified financial companies in the United States have price-to-earnings ratios greater than 2.6x, and even price-to-earnings ratios greater than 5x are not uncommon. However, the P/S may be low for a reason and further research is needed to determine if this is justified.

Check out our latest analysis for Compass Diversified

NYSE:CODI Price to Sales Ratio vs. industry May 3, 2024

What does Compass Diversified’s P/S mean for shareholders?

While the industry has seen revenue growth lately, Compass Diversified’s revenues have been in the opposite direction, which isn’t great. The price-to-earnings ratio is likely low because investors believe this poor revenue performance will not improve. If this is the case, existing shareholders will likely struggle to get excited about the future direction of the share price.

If you want to see what analysts are predicting for the future, check out our free report on Compass Diversified.

What is Compass Diversified’s revenue growth trend like?

Compass Diversified’s price-to-earnings ratio would be typical of a company that is expected to deliver only limited growth and, more importantly, underperform the industry.

Retrospectively, the past year saw a frustrating 8.6% decline in the company’s revenue. Yet there has been an excellent overall sales increase of 46% over the past three years, despite unsatisfactory short-term performance. While it’s been a bumpy ride, we can still say that revenue growth has been more than adequate for the company lately.

Looking to the future, estimates from the seven analysts covering the company suggest that revenue should grow 12% over the next year. That appears to be significantly higher than the 1.5% growth forecast for the broader sector.

With this information, we find it strange that Compass Diversified is trading at a lower price-to-earnings ratio than the sector. It seems that most investors are not at all convinced that the company can deliver on future growth expectations.

The most important takeaway

While the price-to-sales ratio shouldn’t be the determining factor in whether or not you buy a stock, it is a good barometer of revenue expectations.

To us, it looks like Compass Diversified is currently trading at a significantly lower price-to-earnings ratio, as its expected revenue growth is higher than the rest of the industry. There may be some important risk factors that put downward pressure on the price-to-earnings ratio. In any case, the price risks appear to be very low, but investors seem to think that future earnings could have a lot of volatility.

It is also worth noting that we have found 2 warning signs for Compass Diversified (1 is a bit off-putting!) that you should keep in mind.

If this risks will make you reconsider your opinion of Compass Diversifiedexplore our interactive list of high-quality stocks to get an idea of ​​what else is out there.

Valuation is complex, but we help make it simple.

Find out if Compass Diversified is potentially over or undervalued by reviewing our comprehensive analysis, including: fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.