If we want to find a stock that could multiply over the long term, what are the underlying trends we should look for? Amongst other things, we'll want to see two things; firstly, a growing return on capital employed (ROCE) and secondly, an expansion in the company's amount of capital employed. Ultimately, this demonstrates that it's a business that is reinvesting profits at increasing rates of return. In light of that, when we looked at AptarGroup (NYSE:ATR) and its ROCE trend, we weren't exactly thrilled.

Understanding Return On Capital Employed (ROCE)

For those who don't know, ROCE is a measure of a company's yearly pre-tax profit (its return), relative to the capital employed in the business. Analysts use this formula to calculate it for AptarGroup:

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

0.15 = US$471m ÷ (US$4.4b - US$1.2b) (Based on the trailing twelve months to March 2024).

Therefore, AptarGroup has an ROCE of 15%. In absolute terms, that's a satisfactory return, but compared to the Packaging industry average of 11% it's much better.

See our latest analysis for AptarGroup

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, you can check out the forecasts from the analysts covering AptarGroup for free.

How Are Returns Trending?

There hasn't been much to report for AptarGroup's returns and its level of capital employed because both metrics have been steady for the past five years. Businesses with these traits tend to be mature and steady operations because they're past the growth phase. So don't be surprised if AptarGroup doesn't end up being a multi-bagger in a few years time.

Our Take On AptarGroup's ROCE

In a nutshell, AptarGroup has been trudging along with the same returns from the same amount of capital over the last five years. Unsurprisingly, the stock has only gained 40% over the last five years, which potentially indicates that investors are accounting for this going forward. So if you're looking for a multi-bagger, the underlying trends indicate you may have better chances elsewhere.

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

For those who like to invest in solid companies, check out this free list of companies with solid balance sheets and 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.