3 Reasons to Sell ATMU and 1 Stock to Buy Instead

Atmus Filtration Technologies has had an impressive run over the past six months as its shares have beaten the S&P 500 by 24.3%. The stock now trades at $58.66, marking a 29.1% gain. This was partly due to its solid quarterly results, and the run-up might have investors contemplating their next move.

Is now the time to buy Atmus Filtration Technologies, or should you be careful about including it in your portfolio? Check out our in-depth research report to see what our analysts have to say, it’s free.

Why Is Atmus Filtration Technologies Not Exciting?

We’re glad investors have benefited from the price increase, but we're sitting this one out for now. Here are three reasons we avoid ATMU and a stock we'd rather own.

1. Long-Term Revenue Growth Disappoints

A company’s long-term sales performance can indicate its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last four years, Atmus Filtration Technologies grew its sales at a tepid 5.2% compounded annual growth rate. This was below our standard for the industrials sector.

2. Low Gross Margin Reveals Weak Structural Profitability

Gross profit margin is a critical metric to track because it sheds light on its pricing power, complexity of products, and ability to procure raw materials, equipment, and labor.

Atmus Filtration Technologies has bad unit economics for an industrials company, giving it less room to reinvest and develop new offerings. As you can see below, it averaged a 26.3% gross margin over the last five years. Said differently, Atmus Filtration Technologies had to pay a chunky $73.68 to its suppliers for every $100 in revenue.

3. Free Cash Flow Margin Dropping

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

As you can see below, Atmus Filtration Technologies’s margin dropped by 3.4 percentage points over the last five years. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. If the longer-term trend returns, it could signal increasing investment needs and capital intensity. Atmus Filtration Technologies’s free cash flow margin for the trailing 12 months was 8.4%.

Final Judgment

Atmus Filtration Technologies isn’t a terrible business, but it doesn’t pass our quality test. With its shares beating the market recently, the stock trades at 21× forward P/E (or $58.66 per share). While this valuation is reasonable, we don’t really see a big opportunity at the moment. We're fairly confident there are better stocks to buy right now. Let us point you toward a top digital advertising platform riding the creator economy.

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