Badger Meter delivered impressive but less-than-perfect Q3 results, sending its shares down today.
Shares of leading water solutions provider Badger Meter (BMI -9.39%) plunged 9% as of 12:30 p.m. ET Thursday, according to data provided by S&P Global Market Intelligence.
This drop comes in spite of the “smart water” industry specialist announcing sales, earnings-per-share, and cash from operations growth of 12%, 23%, and 43% on its third-quarter earnings call this morning. Despite these otherwise impressive results, Badger missed analysts’ expectations on the top line and guided for high-single-digit sales growth going forward, spurring the adverse reaction from the market.
Badger Meter’s lofty valuation requires near-perfect results
Providing flow measurement, water quality and control, and communications offerings (for its devices’ cloud connectivity), Badger Meter is taking the $20 billion smart water industry by storm. However, after growing sales between 23% and 26% in each of the previous four quarters — and with the company’s valuation at nearly 60 times earnings before today’s decline — Badger needed to deliver perfect results and came up shy.
As jarring as this growth slowdown looks, the company has a number of trends working in its favor.
First, Badger’s advanced metering infrastructure system should play a vital role in the water utility industry’s modernization, with the smart water market expected to double in size by 2029. Its bleeding-edge technology in this space is quickly transforming Badger from a mechanical parts leader into a software-as-a-service (SaaS) business with higher profitability.
Growing its net profit margin from 8% in 2014 to 14% today, the company has stepped up its rate of dividend increases, announcing a 26% boost in Q3 — its 32nd year of hikes in a row.
Ultimately, Badger Meter is a magnificent dividend stock benefiting from numerous megatrends, but at 52 times earnings, any results that are less than perfect could continue harming the stock.
