Stock Analysis

AptarGroup (NYSE:ATR) Has Some Way To Go To Become A Multi-Bagger

Published
NYSE:ATR

If you're not sure where to start when looking for the next multi-bagger, there are a few key trends you should keep an eye out for. One common approach is to try and find a company with returns on capital employed (ROCE) that are increasing, in conjunction with a growing amount of capital employed. Put simply, these types of businesses are compounding machines, meaning they are continually reinvesting their earnings at ever-higher rates of return. That's why when we briefly looked at AptarGroup's (NYSE:ATR) ROCE trend, we were pretty happy with what we saw.

What Is Return On Capital Employed (ROCE)?

If you haven't worked with ROCE before, it measures the 'return' (pre-tax profit) a company generates from capital employed in its business. To calculate this metric for AptarGroup, this is the formula:

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

0.14 = US$500m ÷ (US$4.6b - US$1.0b) (Based on the trailing twelve months to September 2024).

Therefore, AptarGroup has an ROCE of 14%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 9.6% it's much better.

Check out our latest analysis for AptarGroup

NYSE:ATR Return on Capital Employed December 25th 2024

In the above chart we have measured AptarGroup's prior ROCE against its prior performance, but the future is arguably more important. If you'd like to see what analysts are forecasting going forward, you should check out our free analyst report for AptarGroup .

What Can We Tell From AptarGroup's ROCE Trend?

While the current returns on capital are decent, they haven't changed much. The company has employed 28% more capital in the last five years, and the returns on that capital have remained stable at 14%. 14% is a pretty standard return, and it provides some comfort knowing that AptarGroup has consistently earned this amount. Over long periods of time, returns like these might not be too exciting, but with consistency they can pay off in terms of share price returns.

The Bottom Line On AptarGroup's ROCE

In the end, AptarGroup has proven its ability to adequately reinvest capital at good rates of return. Therefore it's no surprise that shareholders have earned a respectable 47% return if they held over the last five years. 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 AptarGroup that you might find interesting.

If you want to search for solid companies with great earnings, check out this free list of companies with good balance sheets and impressive 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.