Unveiling Badger Meter (BMI)'s Value: Is It Really Priced Right? A Comprehensive Guide
Badger Meter Inc (NYSE:BMI) experienced a daily loss of 4.82%, and a 3-month loss of 0.57%. Despite these losses, the company reported an Earnings Per Share (EPS) of 2.63. This raises the question: is the stock fairly valued? In this article, we delve into an in-depth valuation analysis of Badger Meter. Read on to discover more about this intriguing stock.
A Snapshot of Badger Meter Inc
Badger Meter Inc, a pioneer in the manufacturing and marketing of products that incorporate flow measurement, control, and other system solutions, serves diverse markets. The company's products, which measure water, oil, chemicals, and other fluids, provide and communicate timely measurement data. The product lines of Badger Meter include sales of water meters, radios, software, and related technologies, as well as water quality monitoring solutions to water utilities. The company also sells meters and other sensing instruments, valves, software, and other solutions for industrial applications in water, wastewater, and other industries. The majority of the company's revenues are derived from the United States.
Understanding the GF Value of Badger Meter
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
Based on GuruFocus' valuation method, the stock of Badger Meter (NYSE:BMI) appears to be fairly valued. The GF Value estimates the stock's fair value at $136.05, considering three key factors: historical multiples, an internal adjustment based on the company's past business growth, and analyst estimates of future business performance. Given its current price of $147.99 per share, Badger Meter's stock shows every sign of being fairly valued. As a result, the long-term return of its stock is likely to be close to the rate of its business growth.
Link: These companies may deliver higher future returns at reduced risk.
Financial Strength of Badger Meter
Investing in companies with low financial strength could result in permanent capital loss. Therefore, it's essential for investors to carefully review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Badger Meter has a cash-to-debt ratio of 10000, which ranks better than 99.87% of 2372 companies in the Hardware industry. Based on this, GuruFocus ranks Badger Meter's financial strength as 10 out of 10, suggesting a strong balance sheet.
Profitability and Growth of Badger Meter
Investing in profitable companies carries less risk, especially in companies that have demonstrated consistent profitability over the long term. Typically, a company with high profit margins offers better performance potential than a company with low profit margins. Badger Meter has been profitable 10 years over the past 10 years. During the past 12 months, the company had revenues of $630.30 million and Earnings Per Share (EPS) of $2.63. Its operating margin of 15.99% is better than 88.44% of 2456 companies in the Hardware industry. Overall, GuruFocus ranks Badger Meter's profitability as strong.
Growth is probably the most important factor in the valuation of a company. GuruFocus research has found that growth is closely correlated with the long term stock performance of a company. A faster growing company creates more value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth of Badger Meter is 9.8%, which ranks better than 65.52% of 2332 companies in the Hardware industry. The 3-year average EBITDA growth rate is 9.5%, which ranks worse than 52.68% of 1961 companies in the Hardware industry.
Return on Invested Capital vs Weighted Cost of Capital
Another way to look at the profitability of a company is to compare its return on invested capital and the weighted cost of capital. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Badger Meter's return on invested capital is 18.52, and its cost of capital is 10.04.
Conclusion
In conclusion, the stock of Badger Meter (NYSE:BMI) shows every sign of being fairly valued. The company's financial condition is strong and its profitability is strong. Its growth ranks worse than 52.68% of 1961 companies in the Hardware industry. To learn more about Badger Meter stock, you can check out its 30-Year Financials here.
To find out the high quality companies that may deliver above average returns, please check out GuruFocus High Quality Low Capex Screener.
This article first appeared on GuruFocus.
