Atmus Filtration Technologies (NYSE:ATMU) Knows How To Allocate Capital

There are a few key trends to look for if we want to identify the next multi-bagger. In a perfect world, we'd like to see a company investing more capital into its business and ideally the returns earned from that capital are also increasing. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. Ergo, when we looked at the ROCE trends at Atmus Filtration Technologies (NYSE:ATMU), we liked what we saw.

What Is Return On Capital Employed (ROCE)?

For those that aren't sure what ROCE is, it measures the amount of pre-tax profits a company can generate from the capital employed in its business. The formula for this calculation on Atmus Filtration Technologies is:

Return on Capital Employed = Earnings Before Interest and Tax (EBIT) ÷ (Total Assets - Current Liabilities)

0.32 = US$275m ÷ (US$1.2b - US$368m) (Based on the trailing twelve months to September 2024).

So, Atmus Filtration Technologies has an ROCE of 32%. That's a fantastic return and not only that, it outpaces the average of 12% earned by companies in a similar industry.

Check out our latest analysis for Atmus Filtration Technologies

Above you can see how the current ROCE for Atmus Filtration Technologies compares to its prior returns on capital, but there's only so much you can tell from the past. If you'd like, you can check out the forecasts from the analysts covering Atmus Filtration Technologies for free.

The Trend Of ROCE

Atmus Filtration Technologies deserves to be commended in regards to it's returns. Over the past three years, ROCE has remained relatively flat at around 32% and the business has deployed 61% more capital into its operations. With returns that high, it's great that the business can continually reinvest its money at such appealing rates of return. If Atmus Filtration Technologies can keep this up, we'd be very optimistic about its future.

The Key Takeaway

In short, we'd argue Atmus Filtration Technologies has the makings of a multi-bagger since its been able to compound its capital at very profitable rates of return. Therefore it's no surprise that shareholders have earned a respectable 89% return if they held over the last year. So while investors seem to be recognizing these promising trends, we still believe the stock deserves further research.

One more thing, we've spotted 1 warning sign facing Atmus Filtration Technologies that you might find interesting.

Atmus Filtration Technologies is not the only stock earning high returns. If you'd like to see more, check out our free list of companies earning high returns on equity with solid fundamentals.

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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.