AMETEK, a global manufacturer of electronic instruments and electromechanical devices, has been demonstrating promising signs in its return on capital employed (ROCE) trend, an important metric used to assess a company's profitability and the efficiency with which its capital is utilized.
As of June 2023, AMETEK's ROCE stands at 14%, calculated as follows: 0.14 = US$1.6b ÷ (US$13b - US$1.3b). This figure closely aligns with the Electrical industry average of 13%, indicating a fairly standard return on the capital employed.
Over the past five years, AMETEK's ROCE has remained consistent at around 14%, while the company has increased capital deployment into its operations by an impressive 65%. While a 14% ROCE might be considered moderate in some contexts, it is significant here given the company's consistent reinvestment at these rates.
This persistence in reinvesting at respectable rates of return has rewarded shareholders with a notable 94% return over the last five years. Despite the stock potentially being more "expensive" now than in the past, this robust performance suggests that AMETEK warrants further investigation for prospective investors.
In the search for stocks with the potential for long-term value multiplication, it is crucial to consider both a growing ROCE and a steadily increasing base of capital employed. AMETEK's steady performance in both these areas makes it an illustrative example.
However, it is important to note that while consistent returns of this nature might not appear thrilling over a short period, they can lead to substantial share price returns over an extended period. This highlights the potential long-term value of stocks like AMETEK that consistently demonstrate healthy returns on capital employed.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.