Capital Investment Trends At Atmus Filtration Technologies (NYSE:ATMU) Look Strong

There are a few key trends to look for if we want to identify the next multi-bagger. Firstly, we'll want to see a proven return on capital employed (ROCE) that is increasing, and secondly, an expanding base of capital employed. Basically this means that a company has profitable initiatives that it can continue to reinvest in, which is a trait of a compounding machine. Ergo, when we looked at the ROCE trends at Atmus Filtration Technologies (NYSE:ATMU), we liked what we saw.

Return On Capital Employed (ROCE): What Is It?

Just to clarify if you're unsure, ROCE is a metric for evaluating how much pre-tax income (in percentage terms) a company earns on the capital invested 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$262m ÷ (US$1.2b - US$365m) (Based on the trailing twelve months to June 2024).

So, Atmus Filtration Technologies has an ROCE of 32%. In absolute terms that's a great return and it's even better than the Machinery industry average of 14%.

View our latest analysis for Atmus Filtration Technologies

In the above chart we have measured Atmus Filtration Technologies' prior ROCE against its prior performance, but the future is arguably more important. If you'd like, you can check out the forecasts from the analysts covering Atmus Filtration Technologies for free.

What The Trend Of ROCE Can Tell Us

In terms of Atmus Filtration Technologies' history of ROCE, it's quite impressive. The company has employed 53% more capital in the last three years, and the returns on that capital have remained stable at 32%. Now considering ROCE is an attractive 32%, this combination is actually pretty appealing because it means the business can consistently put money to work and generate these high returns. If Atmus Filtration Technologies can keep this up, we'd be very optimistic about its future.

Our Take On Atmus Filtration Technologies' ROCE

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 88% return if they held over the last year. So even though the stock might be more "expensive" than it was before, we think the strong fundamentals warrant this stock for further research.

Atmus Filtration Technologies does have some risks though, and we've spotted 1 warning sign for Atmus Filtration Technologies that you might be interested in.

If you want to search for more stocks that have been earning high returns, check out this free list of stocks with solid balance sheets that are also earning high returns on equity.

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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.