For investors aiming to construct a durable, long-term portfolio, the ideas of quality investing present a strong framework. This method concentrates on finding companies with lasting competitive strengths, sound financial condition, and the capacity to produce steady, high returns on capital. Instead of searching for large discounts, quality investors are ready to pay a reasonable price for outstanding businesses they can hold for many years. A structured method to find these candidates is through a stock screener based on measurable quality standards, such as the "Caviar Cruise" screen, which selects for solid past growth, high profitability, and firm financial condition.
One company that appears from this strict screening process is Badger Meter Inc (NYSE:BMI), a supplier of flow measurement and water management solutions. By reviewing BMI against important quality filters, an image forms of a company that not only satisfies but frequently surpasses the strict standards wanted by long-term investors.
Satisfying the Central Quality Standards
The Caviar Cruise method highlights several basic financial measures to distinguish outstanding companies from the others. Badger Meter’s results across these areas are significant.
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Continued and Profitable Growth: The screen demands at least 5% yearly growth in both revenue and EBIT (earnings before interest and taxes) over five years. BMI does much better here, with a 5-year revenue CAGR of 9.05% and an EBIT CAGR of 20.53%. Importantly, EBIT growth greatly exceeds revenue growth, a clear sign of better operational efficiency and possible pricing strength, a key trait of a quality business with competitive edges.
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Outstanding Returns on Capital: A central part of quality investing is assessing how well a company uses its capital. The screen requires a Return on Invested Capital (excluding cash and goodwill) over 15%. BMI’s number of 51.26% is remarkable, showing it creates significant profit from each dollar put into its main operations. This high ROIC points to a strong business model and a lasting advantage.
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Careful Financial Management: Financial durability is essential. The screen applies a Debt-to-Free Cash Flow ratio below 5 to confirm debts are not excessive. BMI performs very well with a ratio of 0.0, showing a balance sheet with no debt. This offers great operational freedom and lowers risk in economic declines.
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Superior Earnings Quality: The screen seeks a 5-year average Profit Quality (Free Cash Flow/Net Income) above 75%, making sure reported profits become actual cash. BMI’s average of 126.18% shows it produces more cash flow than accounting net income, a mark of very efficient operations and sound working capital management.
Fundamental Condition and Valuation Perspective
An examination of BMI’s wider fundamental analysis report supports its quality standing. The company receives a high total fundamental score of 7 out of 10, with special force in Profitability (9/10) and Financial Health (8/10). Its margins are at the peak of its industry, and its perfect solvency and liquidity ratios highlight a very firm balance sheet.
The main factor for investors is valuation. The report states BMI trades at a high price, with a Price-to-Earnings ratio of 37.83. This matches a frequent rule of quality investing: excellent businesses are seldom inexpensive. The valuation shows the market’s acknowledgment of BMI’s reliable growth, high returns, and financial soundness. The choice for an investor is if the high price is warranted by the company’s lasting competitive place in the essential water infrastructure market.
A Prospect for Long-Term Portfolios
Badger Meter works in a vital, stable sector, water management, which gains from lasting patterns like infrastructure updates and resource preservation. Its mix of solid growth, top-tier profitability, and a balance sheet with no debt makes it a clear model of the kind of company quality investing screens are made to find. It shows the capability to increase revenue, grow profits at a quicker rate, and turn those profits into large free cash flow, all while achieving superior returns on capital.
For investors wanting to examine other companies that pass similar strict quality tests, the Caviar Cruise screening settings can be viewed and adjusted here: Explore the Caviar Cruise Screen.
Disclaimer: This article is for informational purposes only and does not constitute financial advice, a recommendation, or an offer to buy or sell any security. Investing involves risk, including the potential loss of principal. You should conduct your own research and consult with a qualified financial advisor before making any investment decisions.
