The Market's Love Affair With Atlas Copco Risks Lower Long-Term Returns

I’m often asked what I think is the best company or stock in a given industry or sector – Atlas Copco (OTCPK:ATLKY) is definitely one of the best companies I follow, irrespective of sector or industry. Double-digit trailing FCF growth, mid-teens FCF margins, strong share in multiple markets, and a disciplined management team all play into that, and the double-digit long-term total return has likewise been quite good.

Still, for all of the positives I see at Atlas, including good leverage to the global industrial recovery and ongoing investment in semiconductor capex, the valuation is just too high. I see Atlas as among the lowest long-term return prospects among the industrials I cover, and lest you think I’m overly conservative on modeling, I’d note that my 2023 revenue number is more than 10% above the sell-side average (likewise for FCF).

I’ve learned to not underestimate how far the market can run with a name it likes, but it’s tough for me to envision the combination of growth and further re-rating it will take for Atlas to keep generating double-digit returns for investors.

 

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The Market's Love Affair With Atlas Copco Risks Lower Long-Term Returns