Is Atmel Corporation (ATML) Destined for Greatness?

Investors love stocks that consistently beat the Street without getting ahead of their fundamentals and risking a meltdown. The best stocks offer sustainable market-beating gains, with robust and improving financial metrics that support strong price growth. Does Atmel Corporation (NASDAQ:ATML) fit the bill? Let’s take a look at what its recent results tell us about its potential for future gains.

What we’re looking for

The graphs you’re about to see tell Atmel Corporation (NASDAQ:ATML)’s story, and we’ll be grading the quality of that story in several ways:

1). Growth: Are profits, margins, and free cash flow all increasing?
2). Valuation: Is share price growing in line with earnings per share?
3). Opportunities: Is return on equity increasing while debt to equity declines?
4). Dividends: Are dividends consistently growing in a sustainable way?

What the numbers tell you

Now, let’s take a look at Atmel Corporation (NASDAQ:ATML)’s key statistics:

ATML Total Return Price data by YCharts

Passing Criteria	3-Year* Change	Grade
Revenue growth > 30%	(1.4%)	Fail
Improving profit margin	78.6%	Pass
Free cash flow growth > Net income growth	(48.6%) vs. 78.9%	Fail
Improving EPS	77.4%	Pass
Stock growth (+ 15%) < EPS growth	51.3% vs. 77.4%	Pass

Source: YCharts. * Period begins at end of Q2 2010.

ATML Return on Equity data by YCharts

Passing Criteria	3-Year* Change	Grade
Improving return on equity	83.5%	Pass
Declining debt to equity	No debt	Pass

Source: YCharts. * Period begins at end of Q2 2010.

How we got here and where we’re going

Atmel Corporation (NASDAQ:ATML) hits some positive notes, but was tripped up by both its revenue and free cash flow metrics. Despite net income growth surpassing that of free cash flow during our tracked period, Atmel’s trailing 12-months free cash flow is actually the only metric of the two that’s remained in positive territory for the past three years. Five out of seven possible passing grades is fairly strong, and Atmel has a chance to attain a perfect score next time around. How might Atmel boost its revenue and resume free cash flow growth over the next few quarters? Let’s dig a little deeper to find out.