Key Insights

• Given the large stake in the stock by institutions, Compass Diversified's stock price might be vulnerable to their trading decisions
• 51% of the business is held by the top 15 shareholders
• Recent purchases by insiders

To get a sense of who is truly in control of Compass Diversified (NYSE:CODI), it is important to understand the ownership structure of the business. The group holding the most number of shares in the company, around 55% to be precise, is institutions. In other words, the group stands to gain the most (or lose the most) from their investment into the company.

And as as result, institutional investors reaped the most rewards after the company's stock price gained 3.0% last week. One-year return to shareholders is currently 17% and last week's gain was the icing on the cake.

Let's take a closer look to see what the different types of shareholders can tell us about Compass Diversified.

What Does The Institutional Ownership Tell Us About Compass Diversified?

Institutions typically measure themselves against a benchmark when reporting to their own investors, so they often become more enthusiastic about a stock once it's included in a major index. We would expect most companies to have some institutions on the register, especially if they are growing.

We can see that Compass Diversified does have institutional investors; and they hold a good portion of the company's stock. This can indicate that the company has a certain degree of credibility in the investment community. However, it is best to be wary of relying on the supposed validation that comes with institutional investors. They too, get it wrong sometimes. If multiple institutions change their view on a stock at the same time, you could see the share price drop fast. It's therefore worth looking at Compass Diversified's earnings history below. Of course, the future is what really matters.

Institutional investors own over 50% of the company, so together than can probably strongly influence board decisions. It looks like hedge funds own 11% of Compass Diversified shares. That worth noting, since hedge funds are often quite active investors, who may try to influence management. Many want to see value creation (and a higher share price) in the short term or medium term. The company's largest shareholder is Compass Group Investments, Inc, with ownership of 11%. American Century Investment Management Inc is the second largest shareholder owning 7.2% of common stock, and The Vanguard Group, Inc. holds about 6.7% of the company stock. Additionally, the company's CEO Elias Sabo directly holds 0.9% of the total shares outstanding.

A closer look at our ownership figures suggests that the top 15 shareholders have a combined ownership of 51% implying that no single shareholder has a majority.

While studying institutional ownership for a company can add value to your research, it is also a good practice to research analyst recommendations to get a deeper understand of a stock's expected performance. Quite a few analysts cover the stock, so you could look into forecast growth quite easily.

Insider Ownership Of Compass Diversified

The definition of an insider can differ slightly between different countries, but members of the board of directors always count. Company management run the business, but the CEO will answer to the board, even if he or she is a member of it.

I generally consider insider ownership to be a good thing. However, on some occasions it makes it more difficult for other shareholders to hold the board accountable for decisions.

Shareholders would probably be interested to learn that insiders own shares in Compass Diversified. It is a pretty big company, so it is generally a positive to see some potentially meaningful alignment. In this case, they own around US$28m worth of shares (at current prices). Most would say this shows alignment of interests between shareholders and the board. Still, it might be worth checking if those insiders have been selling.

General Public Ownership

With a 33% ownership, the general public, mostly comprising of individual investors, have some degree of sway over Compass Diversified. While this size of ownership may not be enough to sway a policy decision in their favour, they can still make a collective impact on company policies.

Next Steps:

It's always worth thinking about the different groups who own shares in a company. But to understand Compass Diversified better, we need to consider many other factors. For instance, we've identified 2 warning signs for Compass Diversified (1 is a bit concerning) that you should be aware of.

Ultimately the future is most important. You can access this free report on analyst forecasts for the company.

NB: Figures in this article are calculated using data from the last twelve months, which refer to the 12-month period ending on the last date of the month the financial statement is dated. This may not be consistent with full year annual report figures.

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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.