Badger Meter Inc (NYSE:BMI) Passes Strict Quality Investing Screen

For investors aiming to assemble a collection of lasting, superior businesses, the quality investing method provides a structured system. This approach centers on finding firms with durable competitive strengths, sound financial condition, and a demonstrated history of creating high returns on capital over extended timeframes. Instead of searching for large bargains, quality investors accept paying a reasonable price for outstanding businesses they can hold for many years. A methodical path to find these prospects is through a stock screener based on measurable foundations of quality: steady revenue and profit expansion, high and rising returns on invested capital, solid free cash flow production, and a strong balance sheet.

One firm that recently appeared from such a "Caviar Cruise" quality screen is Badger Meter Inc (NYSE:BMI), a supplier of flow measurement and water management products. The screen's filters are created to separate businesses with the characteristics of a quality firm, and Badger Meter's financial profile matches these strict standards closely.

Matching the Central Quality Standards

The basic screen uses several strict filters to evaluate historical results and financial soundness. Badger Meter's reported numbers not only satisfy but frequently greatly surpass these limits:

• Growth Steadiness: The screen demands a minimum 5% compound annual growth rate (CAGR) for both revenue and EBIT (earnings before interest and taxes) over five years. Badger Meter performs very well here, with a revenue CAGR of 9.05% and a notable EBIT CAGR of 20.53%. Importantly, its EBIT expansion exceeds its revenue expansion, a main screen filter that points to increasing profitability and possible pricing strength or operational improvements.

• Outstanding Capital Effectiveness: A core idea of quality investing is evaluating how effectively a firm uses its capital. The screen requires a Return on Invested Capital (excluding cash, goodwill, and intangibles) above 15%. Badger Meter's number of 51.26% is remarkable, showing it creates significant profit from each dollar put into its core business activities. This high ROIC is a strong sign of a lasting competitive edge.

• Financial Stability and Cash Flow Character: The method stresses financial safety and high-grade earnings. The screen selects for a Debt-to-Free Cash Flow ratio under 5, and Badger Meter shows a ratio of 0.0, indicating a balance sheet with no net debt. Also, it searches for a five-year average Profit Quality (Free Cash Flow/Net Income) above 75%. Badger Meter's average of 126.18% shows it changes more than 100% of its accounting profits into actual cash flow, offering great financial room for dividends, share repurchases, or strategic reinvestment.

Fundamental Analysis Summary

An examination of Badger Meter's detailed fundamental report supports the screen's conclusions. The firm receives a solid overall fundamental score of 7 out of 10, with especially high marks in Profitability (9/10) and Financial Health (8/10). The review notes an excellent Return on Equity of 19.75% and sector-leading margins, with a Profit Margin of 15.40% and an Operating Margin of 19.93%. Its clean balance sheet is mentioned with a high Altman-Z score and no debt. The main warning noted is in the Valuation group (3/10), where its present Price-to-Earnings ratio is viewed as high compared to the wider market, a typical trait of high-grade firms.

Fit with Quality Investing Ideas

Beyond the figures, Badger Meter's business model fits the non-quantitative features desired by quality investors. The company works in the essential water infrastructure industry, a market pushed by long-term forces like resource preservation, regulatory requirements, and old utility systems. Its BlueEdge set of smart water products implies a competitive barrier formed on technology, software, and established customer connections. The business is likely straightforward to grasp—supplying critical measurement and data—and its leadership has shown skill through reliable performance and capital distribution.

Discovering Additional Quality Prospects

Badger Meter shows the kind of firm a quality-oriented screen can find. Investors wanting to investigate other companies that pass similar strict financial checks can run the screen personally. You can see the present outcomes and modify the settings using the Caviar Cruise stock screener.

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.