Isn't it funny how popularity is not often a good thing for long-term investors? Take the case of filtration -- I've been writing on this sector for a while, and although the underlying business fundamentals still have promise, investor overenthusiasm last year led to some pretty underwhelming stock returns. And with Pall (NYSE:PLL) still seeing margin compression and inadequate returns on capital, I'm not sure there's any reason to step up yet.

It was a challenging quarter for this leading player in filtration and separation equipment and technology. Reported sales growth of just more than 3% is nothing to get fired up about, though the 7% currency-adjusted growth is more in line with the company's own long-term goals of high-single-digit performance. Overall, though, it was a patchy showing -- biopharmaceuticals and microelectronics were strong, but every other segment was below average.

Margin performance was also nothing to be excited about. Gross margins fell more than 3 full points as reported, and my calculation of operating income shows a 2% drop -- the company seems to exclude R&D expenses from its calculation. As you can imagine, then, operating margins also fell. To its credit, management isn't ignoring this problem or trying to talk it down -- there's an admission that the margins aren't satisfactory today.

Awareness, though, doesn't automatically translate into successful resolution. In addition, I can't help noticing that this company has a rather sporadic history with respect to returns on capital -- seldom achieving the level I look for in good companies that are purportedly leaders in their markets. On top of that, the valuation really is no bargain even when you give the company the benefit of the doubt with those planned operating improvements.

Cheapness and filtration companies don't really go together at this point. Millipore (NYSE:MIL), CLARCOR (NYSE:CLC), Donaldson (NYSE:DCI) -- none of them are really "cheap" right now. But if you just have to get into this space, you might want to at least consider a competitor with a better track record of returns on capital and/or better near-term turnaround prospects.

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Fool contributor Stephen Simpson has no financial interest in any stocks mentioned (that means he's neither long nor short the shares).