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3 Reasons to Avoid CMPO and 1 Stock to Buy Instead

CMPO Cover Image

What a brutal six months it’s been for CompoSecure. The stock has dropped 27.9% and now trades at $10.31, rattling many shareholders. This was partly due to its softer quarterly results and might have investors contemplating their next move.

Is now the time to buy CompoSecure, or should you be careful about including it in your portfolio? Dive into our full research report to see our analyst team’s opinion, it’s free.

Even though the stock has become cheaper, we're swiping left on CompoSecure for now. Here are three reasons why you should be careful with CMPO and a stock we'd rather own.

Why Is CompoSecure Not Exciting?

Pioneer of the luxury metal credit card that's in the wallets of affluent consumers worldwide, CompoSecure (NASDAQ: CMPO) designs and manufactures premium metal payment cards and secure authentication solutions for financial institutions and digital asset storage.

1. Fewer Distribution Channels Limit its Ceiling

With $420.6 million in revenue over the past 12 months, CompoSecure is a small player in the business services space, which sometimes brings disadvantages compared to larger competitors benefiting from economies of scale and numerous distribution channels. On the bright side, it can grow faster because it has more room to expand.

2. Shrinking Adjusted Operating Margin

Adjusted operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies because it excludes non-recurring expenses, interest on debt, and taxes.

Analyzing the trend in its profitability, CompoSecure’s adjusted operating margin decreased by 4.8 percentage points over the last four years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Its adjusted operating margin for the trailing 12 months was 25.6%.

CompoSecure Trailing 12-Month Operating Margin (Non-GAAP)

3. EPS Trending Down

Analyzing the change in earnings per share (EPS) shows whether a company's incremental sales were profitable – for example, revenue could be inflated through excessive spending on advertising and promotions.

CompoSecure’s full-year EPS dropped 13.2%, or 6.4% annually, over the last two years. We tend to steer our readers away from companies with falling revenue and EPS, where diminishing earnings could imply changing secular trends and preferences. If the tide turns unexpectedly, CompoSecure’s low margin of safety could leave its stock price susceptible to large downswings.

CompoSecure Trailing 12-Month EPS (Non-GAAP)

Final Judgment

CompoSecure’s business quality ultimately falls short of our standards. Following the recent decline, the stock trades at 9.6× forward price-to-earnings (or $10.31 per share). While this valuation is optically cheap, the potential downside is big given its shaky fundamentals. We're fairly confident there are better investments elsewhere. Let us point you toward one of Charlie Munger’s all-time favorite businesses.

Stocks We Like More Than CompoSecure

Market indices reached historic highs following Donald Trump’s presidential victory in November 2024, but the outlook for 2025 is clouded by new trade policies that could impact business confidence and growth.

While this has caused many investors to adopt a "fearful" wait-and-see approach, we’re leaning into our best ideas that can grow regardless of the political or macroeconomic climate. Take advantage of Mr. Market by checking out our Top 5 Growth Stocks for this month. This is a curated list of our High Quality stocks that have generated a market-beating return of 175% over the last five years.

Stocks that made our list in 2019 include now familiar names such as Nvidia (+2,183% between December 2019 and December 2024) as well as under-the-radar businesses like Sterling Infrastructure (+1,096% five-year return). Find your next big winner with StockStory today for free.

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