Add to watchlist #2: Atlas Copco AB
Each week I dive into global markets and share some stock ideas that catch my eye.
They are all fantastic businesses with rock-solid fundamentals. But they are overvalued right now based on my valuation criteria. So maybe add them to your watchlist instead of buying immediately.
Let's look at this week's featured company.
Atlas Copco AB
Symbol:
ATCO-ACountry: Sweden
Listed: Stockholm Stock Exchange
Market cap: $75b
Price: SEK 157.80 (2025-06-06)
What Atlas Copco actually does
Atlas Copco AB dominates the industrial sector with an impressive range of products and services.
The company started way back in 1873. Back then, they made railway equipment. Fast forward to today and Atlas Copco has transformed into a global industrial powerhouse. They are based in Stockholm, Sweden, but their reach extends to more than 180 countries worldwide.
What they specialize in
Atlas Copco develops, manufactures and markets an extensive product lineup:
Compressors: industrial compressors, gas and process compressors, plus portable units.
Vacuum solutions: vacuum pumps, complete systems, and related services across multiple industries.
Industrial tools and assembly systems: power tools, assembly systems, and specialized solutions for automotive, aerospace and general manufacturing.
Power technique: generators, light towers and portable energy solutions.
Their product range
Atlas Copco's product catalog is massive. They serve manufacturing, construction, mining, oil and gas and healthcare industries. Their key products include:
Air and gas compressors: essential for manufacturing, oil and gas operations, and countless other applications.
Vacuum pumps: critical for semiconductor manufacturing, food packaging, and chemical processing.
Industrial power tools: both pneumatic and electric tools for assembly work and material removal.
Generators and lighting towers: power and lighting solutions for construction sites and special events.
Market forces shaping their future
Several trends are reshaping Atlas Copco's business landscape:
Sustainability: companies want energy-efficient, environmentally friendly solutions. Atlas Copco is responding by developing products that slash energy consumption and reduce emissions.
Digitalization: IoT and data analytics are revolutionizing industrial operations. The company is investing heavily in smart, connected products that boost efficiency and productivity.
Automation: manufacturing automation is accelerating demand for advanced assembly systems and robotic solutions.
Globalization: expanding into emerging markets while providing localized solutions for specific customer needs.
Atlas Copco is adapting well to these trends. They're doubling down on sustainability, digitalization, automation and global expansion to stay ahead of competitors.
The numbers tell a great story
Let me walk you through their financial performance.
The company delivered steady revenue growth over the past five years with an 11.24% CAGR. That's solid, consistent expansion.
Not only did revenues grow, but net income climbed nicely too. Their average net income margin over five years hit 16.17%. That's impressive profitability.
Free cash flow generation was particularly strong with an 18.03% CAGR over the last year. Their FCF margin of 15.89% for the same period shows they're converting profits into actual cash effectively.
Here's what really impresses me: Atlas Copco's capital management sets the industry standard. It's not just high performance, it's consistent performance. Both average ROIC and CROIC exceeded 21% over the past five years. That's exceptional capital efficiency.
My take on Atlas Copco
Atlas Copco AB stands out as a premier global industrial company.
The company's financial health is outstanding, backed by smart capital management and robust operating margins. I'd call Atlas Copco a "quality compounder" - they deliver consistent financial performance, stable growth and strong cash generation. This makes them a reliable dividend payer with around a 1.8% yield.
Their diversified business model and global presence help cushion economic shocks. This allows them to consistently outperform key competitors.
Overall, I view Atlas Copco AB as a stable, high-quality investment in the industrial sector. They offer reliable returns and consistent value creation.
The only problem? They're trading at a premium right now. So while the business quality is excellent, the price might give you pause.